3 Great Funds Having a Lousy Year
These Gold-rated funds are in a dry spell.
Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. When assigning Morningstar Analyst Ratings, we focus on managers with disciplined approaches that we think will outperform during a full market cycle. But that doesn't mean there won't be some dry spells along the way. Here are three Gold-rated funds that are struggling in this year.
Alec Lucas: Gold-rated Primecap Odyssey Growth is having a tough year thus far in 2019. It's up more than 12% through June 27, but that lags the more than 20% gain of the Russell 3000 Growth Index, and it places the fund near the bottom of its large-growth Morningstar Category. Healthcare holdings have hurt the fund thus far in 2019. For example, it had a top 25 position in Biogen in March when that company's share price plunged 29% in a single day because of the failure of a late-stage Alzheimer's drug. Other holdings that have hurt the fund include Abiomed and the biotech firm Alkermes. The fund, though, maintains one of the best records in the Morningstar large-growth category since its inception, thanks to those kinds of picks. Its managers tend to be patient with their stock picks, and they have a tremendous tolerance for pain. Investors have to as well, and this year is a reminder that, to succeed with this fund, you have to have the kind of patience that its managers do.
Dan Culloton: I think a little perspective is needed when looking at the performance of Oakmark International this year. Yes, it's been a volatile year for it, and it is trailing its peers and benchmark for the year through about midyear. But it's also up nearly 11%. But this isn't out of character with longtime manager David Herro's approach. He typically gravitates to areas where there is controversial headlines and looks for companies that--even though they maybe going through some temporary trouble--are still increasing their intrinsic values. So, when we look at the portfolio and we look at the companies that have been holding the fund back so far this year, what we see are the type of firms and stocks that David Herro and his team have long invested in and have actually turned in good results over 27 years for investors of this fund over the long term. So, although the fund is trailing its peers and benchmark so far this year, it has come back from a very difficult 2018, and it's not doing anything different than it has done over the last nearly 30 years. So, while it's difficult, we think this is a fund that investors should hang on to.
Kevin McDevitt: Yacktman Funds' poor relative results so far in 2019 are easily explained and not cause for worry for those who are on board with its approach. The fund's 10.5% year-to-date return through June 26 trails the S&P 500 index's 17.4% and the Russell 1000 Value's 14.7% by wide margins. The fund's subpar 2019 return owes largely, though, to the fact that the fund had more than 29% of its assets in cash heading into the year and through the first quarter. This created a huge drag on performance. Otherwise, the fund's holdings had performed quite well. The fund's big cash stake shows how risk- and valuation-conscious managers Stephen Yacktman and Jason Subotky are. It's nothing new either for this fund to hold a lot of cash. Over the past decade, cash has usually been greater than 10% of assets outside of a brief stretch during the 2011 correction. As a result, the fund captured just 66% of the S&P 500's losses during down markets over that 10-year time frame. Therefore, this fund is best suited to investors who are similarly risk-averse and are willing to sacrifice gains during a bull market to protect in the downside. So, for investors who are comfortable with its conservative approach, this fund remains an attractive option.
Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.