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Fund Spy

More Funds that Deserve a Second Chance

We've warmed up to these mutual funds.

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In a recent Fund Spy, we highlighted a few funds over which we once had doubts but are now more comfortable. We limited our article to just two fund companies, Janus and Morgan Stanley, because those stories had broader elements to them, but that's not always the case. In this follow-up Spy, we'll highlight some more funds that have changed our minds.

Before moving on, however, we'd like to address a comment from a reader who expressed concern that we advocated any fund from a fund family that was involved in the market-timing scandal. We certainly appreciate the reader's accurate assertion that fiduciary blunders make lasting impressions and that they shouldn't be taken lightly. We've worked closely with all of the shops that were involved, spending a good deal of time with upper management, which in many cases has changed, as well as the investment staffs and the boards of directors. In cases where our opinion on a fund company has grown more favorable, we're convinced that new procedures and personnel will protect investor interests.

 Berwyn (BERWX)
This small-value fund ran hot and cold for years. We could see flashes of brilliance from manager Robert Killen as he sifted through the smallest of stocks, and we've always liked his strictly value-oriented stock-picking approach--looking for a margin of safety when it comes to micro-caps is a smart tactic. But Killen's tendency to load up on sectors added risk, produced a lot of volatility, and thus made it hard to figure out how to use the fund in a portfolio. In late 2001, however, Lee Grout joined Killen as a comanager. Grout's financial training nicely complemented Killen's statistics background, and the two made changes to portfolio construction. While they kept a concentrated portfolio in terms of stocks (roughly 40), they broadened out the sector exposure to increase diversification. After five years of exceptional returns, both on an absolute basis and relative to the competition, the fund suffered a dry spell in 2006, and we'd continue to expect some of that as micro-caps come in and out of favor. But we're much more comfortable with this offering now that Killen and Grout have several years of good results together. We also appreciate the team's willingness to close the fund when the asset base gets too unwieldy for a concentrated micro-cap strategy. The fund had previously closed when assets were close to $200 million. It's open now.

Bridget B. Hughes does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.