3 Funds That Are Better Than They Look

Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. Sometimes a fund's long-term track record can be deceiving. A fund's style can be out of favor for a prolonged period of time, yet its approach maybe solid and its management adapt. Today, we're looking at three such funds. These funds all carry Morningstar Ratings of 2 stars or less yet earn Morningstar (fund) Analyst Ratings of Bronze or better.

Jack Barry: Silver-rated ClearBridge Aggressive Growth still has a lot in its favor despite its 2-star rating. First and foremost is the experienced management team. Lead manager Richie Freeman has been with the fund since its inception in the 1980s. He's joined by comanager Evan Bauman, who's worked alongside him for 20 years, first as an analyst and then being promoted to comanager in 2009. Both investors take a long-term approach to searching out growth-oriented companies and to consider themselves as part business owners alongside management and thus look for shareholder-friendly management teams.

Dan Culloton: It's a mistake to penalize a good value fund when value is out of favor. And that's the situation we have with Oakmark Global. It still has the same management, same experienced management, same absolute value process, same concentrated distinct portfolio. What's changed, though, is that, in 2018, it really had a rough year, primarily because of its exposure to Europe and carmakers and European financials and because it was underweight the U.S. It's been out of favor. It's been out of favor before. But its management, its process are still the same. And we think that, overall, it's still a good bet for investors who want a global value fund.

Gregg Wolper: Sound Shore Fund is a good fund, but it has not performed well the past few years. One reason is because it's a very concentrated fund. It only holds about 35 or 40 stocks usually, and the top holdings--they can get about 4% of assets. And when they don't do well, that can have an impact on performance, naturally. The managers have liked the financials, some of the big banks, for quite a long time. And when Bank of America, Citigroup, and Capital One have rough times, as they have had in the past year, so that really hits the portfolio. So, that partly explains the performance. But there's good reason to remain confident that the fund can outperform over time.

The managers have been in place a long, long time. So have the analysts. And they have remained consistent to their strategy over the years. And that is a moderate value strategy where they don't go after the deepest discounted turnaround plays. They want moderate value--meaning, undervalued stocks but that have a good financial foundation. And this has worked well over the years, and it should continue to work well in the future, given that it's a reasonable strategy and the managers and analysts have such experience putting it into action.