Stay the Course With These 3 Flexible, High-Conviction Funds

It has been especially tough to hold on to high-conviction, high-flexibility funds of late. With a few technology stocks dominating index returns in a protracted rally, active managers who take bets away from the benchmark have struggled.

Over the trailing 12 months ended June 2026, for instance, the average active fund in the large-blend Morningstar Category trailed the average index fund by 74 basis points (the gap reduced to 5 basis points as of July 2026); active funds with fewer than 50 holdings trailed by 5 percentage points. Investors pulled $9.3 billion from these concentrated funds while adding $56.2 billion to index funds over the same period. When a fund deviates from its benchmark and lags it, patience wears thin fast.

But differing from the index is precisely what these funds are built to do. Selling after a rough stretch often means locking in the pain just before the payoff.

Loomis Sayles Global Allocation LGMAX, which earns a Morningstar Medalist Rating of Bronze, features four industry veterans who apply a go-anywhere approach across global equities and fixed income. The equity allocation has ranged from 34% to 71% of assets since 2000, and the managers maintain a compact equity portfolio of 35-65 stocks. Such a flexible approach leads to a more volatile performance profile than most peers, and investors have had to endure steep drawdowns. In 2022, for instance, the fund lost 23.1% amid rapid interest rate hikes. Its long-standing US-equity bias has hurt in 2026, and the fund’s 7.2% return through July trailed 62% of rivals.

That said, diligent bottom-up research and effective cross-asset collaboration inform the strategy, and the fund has rewarded its long-term investors. From its February 2006 inception to July 2026, its 10-year rolling Sharpe ratio always remained above its average global moderate-allocation peer.

Silver-rated FPA Crescent FPACX also invests across asset classes to deliver equitylike returns with less risk. While primarily investing in equities (60% as of June 2026), the managers find creative opportunities in a wide range of assets, including high-yield distressed credit, special-purpose acquisition companies, and private holdings like shipping containers and offshore drilling vessels. Steven Romick and his team are notably absolute value investors, seeking securities trading below their intrinsic value and often sitting on large amounts of cash in the absence of compelling opportunities. This cash drag can cause the fund to lag in rallies. The fund’s year-to-date 8.0% return as of July 2026 trailed the global moderate-allocation category average of 8.3% and the MSCI All Country World Index’s 11.5%.

The fund aims to win by not losing. Over the previous 15 years, its average rolling three-year downside capture ratio against the MSCI ACWI sat at 66%, versus 75% upside capture. Such benefits compound over time: The fund’s 10-year Sharpe ratio of 0.67 matches the MSCI ACWI and handily beats its average category peer’s 0.49.

Bronze-rated Oakmark Select OAKLX restricts itself to US public equities, but that is about the only constraint. A more potent expression of the firm’s flagship Oakmark Fund OAKMX, it holds just 20-25 holdings and has no market-cap or sector limits. It can experience dizzying drawdowns, as evidenced by its worst-decile returns in late 2018, the 2020 pandemic-driven selloff, 2022’s rate hikes, and early 2026’s tariff-driven turmoil. Subsequent rallies often compensate for the losses, but such a boom-and-bust performance profile demands fortitude and patience from investors, especially when its prospectus benchmark, the S&P 500, has reliably generated above-average returns for the past decade.

For what it’s worth, longtime investors have been rewarded. Over manager Bill Nygren’s nearly 30-year tenure through July 2026, the investor share class’ 11.9% annualized gain beat the S&P 500’s 10.0% and the Russell 1000 Value’s 9.2%.

This article first appeared in the August 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.