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By Russel Kinnel and Christine Benz | 10-28-2015 03:00 PM

5 Medalist Funds Shining in a Stormy Year

Some defensive-minded funds have thrived, while others have outperformed by playing offense or pulling back on some hard-hit areas of the market, says Morningstar's Russ Kinnel.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. The year 2015 has been a volatile one for the markets, but some funds have delivered despite that headwind. Joining me to discuss some of 2015's pleasant surprises is Russ Kinnel--he is director of fund research for Morningstar.

Russ, thank you so much for being here.

Russ Kinnel: Good to be here.

Benz: Russ, let's just do a little bit of stage-setting. We were sailing along pretty smoothly until we hit the third quarter of 2015, and then things got pretty volatile.

Kinnel: That's right. And when you have a down time like this, it kind of highlights the funds that are good at playing defense. I think playing good defense--losing less in a down market--is one of the most valuable things a fund can do because that keeps us in the investment so that you're there for the rebound. These are funds that don't just add value on the rallies, they're also about adding value by playing good defense. I think it's worth noting that returns presently are not spectacular, really, anywhere. We're not talking about double-digit returns; we're talking about small single-digit returns or even just losing less than your peers. But it's still important.

Benz: And you probably don't want to make too much of any one time period. But you did feel like, year to date, it's kind of instructive to look at some funds that have managed to deliver despite a choppy market environment.

Kinnel: Yes.

Benz: You brought a short list of funds that we like that have had particularly distinguished performance so far in 2015. Let's start with Diamond Hill Small-Mid Cap (DHMAX). This is a shop that we have been enthusing about at Morningstar for a while, but people might not be familiar with the firm. Let's talk about that and then talk specifically about this fund.

Kinnel: It's a value-driven firm out of Ohio. They just have a few strategies, but they do them well. There's a heavy emphasis on stock-picking and value; it's a pretty straightforward strategy, but they just execute better than a lot of the other firms we see in that same area.

Benz: This is the small- and mid-cap fund. Let's talk about how it has managed to distinguish itself. I saw that it has roughly a 6% return through close to the end of October, which is certainly good relative to its peer group.

Kinnel: They've cut energy and some of the other areas that have been hit hardest. They have got some individual names that are winners like Boston Scientific (BSX). So, both on a sector and individual-stock basis, they have done a really nice job. This is a tough year for mid-value funds, so I am particularly impressed.

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