Morningstar's Favorite Concentrated Equity Funds
These high-conviction funds also have high-conviction portfolios.
Sequoia Fund (SEQUX) has shone the spotlight on the ups and downs that can come along with a highly focused, highly idiosyncratic portfolio. For decades the fund stood out as a shining example of active management, logging market-beating gains. Warren Buffett himself recommended the fund to clients, and Morningstar named its managers domestic-equity fund managers of the year in 2010. A giant stake in beleaguered Valeant Pharmaceuticals (VRX) blew a hole in Sequoia’s short- and long-term track record, however, and the departure of two board members and longtime manager Bob Goldfarb sparked further questions.
In light of its recent troubles--especially the fact that the fund could be run in a slightly different fashion than in the past--Morningstar's analysts recently downgraded the fund from Gold to Bronze. The fund has hung on to a Medalist rating, however, signaling that Morningstar has not lost faith in Sequoia. Morningstar's analysts also believe that certain concentrated funds have the potential to outperform. Indeed, a recent screen of domestic-equity funds identified 14 medalist funds that pack at least 50% of assets into their top 10 holdings; eight of those offerings pack 60% or more into their top 10 positions. Some of these--such as AMG Yacktman (YACKX) and Oakmark Select I (OAKLX)--are well-known among Morningstar readers, but some of the names may be less familiar.
Christine Benz has a position in the following securities mentioned above: OAKLX. Find out about Morningstar’s editorial policies.