First Half Winners and Losers for Funds

Karen Wallace: For Morningstar, I'm Karen Wallace. I'm joined today by Russ Kinnel, he is director of manager research for Morningstar, to talk about first half winners and losers.

Russ, thanks for joining me.

Russ Kinnel: Good to be here.

Wallace: So, let's talk about some of the categories that have done well so far this year.

Kinnel: Yeah. Tech is the best sector this year, rebounding from a down year last year. China and India are the best-performing regions, also kind of rebounding from a slow 2016.

Wallace: OK. And let's talk about some sectors that aren't doing particularly well this year.

Kinnel: Yeah. Energy is really getting crushed and so are commodities; anything energy-related, natural resources, because oil prices have really fallen sharply this year.

Wallace: Turning to individual funds that have done well, what has done well in the equity group?

Kinnel: Vanguard International Growth is really a standout this year. They are ahead of their peers by more than they've been ahead in the last 10 years, a big bet on China, particularly Alibaba and Tencent has really lifted the fund. You don't expect it really from a fund with multiple subadvisors, but they've really been outstanding this year.

Wallace: What's done well in fixed income?

Kinnel: Western Asset Core Plus is a real standout. It's long duration and that's worked really nicely. It's also got an above-average emerging-markets debt stake and that's worked out really well. So, it's a higher risk strategy than most of its peers, but those risks have really paid off nicely this year.

Wallace: Let's look at some funds that have done poorly. Among individual funds what stands out?

Kinnel: Well, Fairholme and Fairholme Focused Income really stand out. Bruce Berkowitz is having another difficult year. Both funds are in the red this year because they have big exposures to Fannie Mae and Freddie. They also have big exposure to Sears and the story with Sears, it just keeps getting crushed. So, it's a very difficult year for both those funds.

Wallace: And this isn't a new trend for Fairholme?

Kinnel: That's right. The fund has got a very tough three-year record, and it's given back a lot of those gains it's had in its glory days.

Wallace: What else stands out among individual funds that haven't done well this year?

Kinnel: Well, FPA Capital is another one that's struggling. It's got a big energy weighting and that's really hurt the fund. We downgraded it in April and in June. Litman Gregory fired them from their Smaller Companies Fund. So, it's been a tough first half for them.

Wallace: All right. Well, thanks so much for being here to discuss the first half winners and losers.

Kinnel: You're welcome.

Wallace: For Morningstar, I'm Karen Wallace. Thanks for watching.