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3 Good Funds Having a Great Year

Christopher Franz, CFA
Kevin McDevitt, CFA

Susan Dziubinski: Hi, I'm Susan Dziubinski from Morningstar. The first quarter of 2019 is officially in the books. Here's a look at three Morningstar Medalist funds whose returns finished near the top of their respective categories last quarter.

Chris Franz: Invesco Small Cap Value is the top-performing fund in the small-value Morningstar Category year-to-date. But this follows a bottom-decile 2018 showing when it shed a quarter of its value. Now the fund also underwent a management change in 2018 when long time comanagers Jonathan Edwards and Jonathan Mueller took over. But the two didn’t change the strategy's aggressive investment approach, which seeks deeply discounted stocks with a contrarian bent but leads to higher volatility. Now the two are patient, and they don’t turn the portfolio over that often, but this high beta profile can lead to wide swings in performance year-to-year. Still, the fund has low fees and recently reopened to new investors in January 2019. Investors can succeed here, but patience and an appetite for risk are required.

Tony Thomas: Neuberger Berman Intrinsic Value is off to a strong start this year. Investors have been bargain-hunting, and that’s what manager Ben Nahum and his team do well. They look for undervalued and even distressed firms that nonetheless have promising cash flows, and that typically leads them into growthier areas like tech and healthcare and industrials, where their stock selection has been particularly good recently. But this fund is not just a flash in the pan. These managers are very experienced, and they have shown that they can pick stocks well over time and that’s what makes this fund a good option for long-term investors.

Kevin McDevitt: Hotchkis & Wiley Mid-Cap Value has been a very volatile, but very effective fund over time. Its performance in the fourth quarter of last year and the first quarter so far of this year have been kind of perfect microcosm of how this fund does in both up markets and down markets. If you recall in the fourth quarter of last year, we had a pretty nasty correction, and the fund did far worse or at least quite a bit worse than its index. This year has been the opposite of that--and, granted, market conditions have changed, we've had a very strong rally--but this fund has done especially well because a lot of those same positions in energy and financials have bounced back. If anyone looking at this fund, looking to add it to their portfolio, keep in mind that again this is a very volatile, a very aggressive fund. It has outperformed over the long term, but volatility comes with it.