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Fund Times

Fund Times: Frank Talk on Energy from Diamond Hill

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We're always glad when we see fund companies communicate with shareholders in a straightforward manner, and Diamond Hill Capital Management's third-quarter shareholder letter is a fine example of good communication. Without sugar-coating performance, the letter begins by admitting that the "performance of our diversified stock funds in the third quarter of 2006 was not good," and it goes on to explain that the funds' sizable energy stake was largely responsible.

While the market rebounded strongly in the third quarter overall, crude oil futures dropped from more than $75 per barrel to near $60, sending many energy-focused equities into negative territory for the quarter. Both  Diamond Hill Long-Short (DIAMX) and  Diamond Hill Small Cap (DHSCX), which have energy stakes comprising more than 25% of assets, were hurt by these declines. In the third quarter, Long-Short declined a small 0.06% and Small Cap a more significant 4.69%. Despite these short-term troubles, however, management at both funds still believes its long-term positions in companies such as  Cimarex Energy (XEC) are well founded.

Lawrence Jones has a position in the following securities mentioned above: OAKLX. Find out about Morningstar’s editorial policies.

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