More Winners and Losers Among Funds With Morningstar Analyst Ratings
A look at a few unusual performance and sales patterns among our Morningstar Medalists.
'Tis the season for summing up. My colleague Russel Kinnel recently listed 2014's mutual fund winners and losers, and the annual Morningstar Fund Manager of the Year awards are in the works. We've already written about some of the contenders for the domestic and international stock, fixed-income, allocation, and alternative prizes and will announce the finalists and winners in January. Until then, here are some other less-obvious observations on the 2014 performance and fund flows of some of the more than 1,000 funds with Morningstar Analyst Ratings.
Best Equity Fund Performance by a Non-India, Non-Real-Estate, Non-Health-Care, Non-Primecap-Run Fund
Bronze-rated Matthews India (MINDX) was the best-performing rated equity fund with a 60% gain through Dec. 18 on the back of a gigantic Indian stock market rally. The real estate and health-care sectors enjoyed strong rallies, too, with Bronze-rated Nuveen Real Estate Securities (FARCX) and Gold-rated Vanguard Health Care (VGHCX) showing up a bit behind with still-impressive gains of around 30% each.
Several funds run by Primecap Capital Management, particularly Gold-rated Vanguard Primecap (VPMCX), Vanguard Primecap Core (VPCCX) and Vanguard Capital Opportunity (VHCOX), turned in the best returns for rated diversified equity funds, rising between 19.7% and 20.2% through Dec. 18. That's already earned them some attention.
One of the strongest performances by a fund that didn't rely solely on India, real estate, health care, or the talents of Primecap, however, came from relative newcomer Gotham Enhanced Return (GENIX), which was up 16.4% and ranked number one in the mid-cap-blend Morningstar Category through Dec. 18.
This is a rare bird. It takes long and short positions in stocks but does so in a way that allows it to maintain virtually 100% exposure to the stock market. It behaves more like a straight equity fund than most other long-short funds, which typically seek to mitigate stock market volatility. So, it is in the mid-blend rather than the long-short category. Veteran hedge fund manager and The Little Book That Beats the Market author Joel Greenblatt and Robert Goldstein run the fund with a style that is a mix of fundamental and quantitative value investing. They have a stable of analysts making accounting adjustments to the financial statements of about 2,000 stocks to arrive at their own cash flow and profitability metrics that the managers then use to rank the universe. The fund then buys the 400 highest ranking and shorts the lowest 400, using a bit of leverage to achieve exposures of 170% long and 70% short. The returns have been impressive since inception, but the fees and turnover are extremely high and its track record is short, which is why it still gets a Neutral analyst rating.
Worst Performance by a Domestic Non-Small-Cap-Growth Equity Fund
Small-cap growth has been one of the worst diversified fund categories of the year through Dec. 18. You can read about what happened to funds like Gold-rated Morgan Stanley Small Company Growth (MSSGX) (hint: too much Twitter (TWTR), not enough health care).
The still relatively new Bronze-rated GoodHaven (GOODX) was down among the small-growth funds through Dec. 18, down 6.7%. The fund, run by former Fairholme (FAIRX) assistant managers Larry Pitkowsky and Keith Trauner, has more than a fifth of its assets in small cap, but it is firmly in the value camp and has been hit mostly with company-specific issues and errant stock selection. Mortgage loan servicer Ocwen Financial (OCN), for example, has fallen by more than 60% this year as it has run afoul of regulators. Some stocks that former colleague Bruce Berkowitz also owns at Fairholme, such as Sears (SHLD) and Leucadia National (LUK), which are down 10% and 21%, respectively, also have stung the fund. It is no surprise then that Fairholme's year-to-date results were in the vicinity of GoodHaven's.
Best-Selling Rated Funds Not Named Vanguard
Vanguard's index funds cleaned up in inflows this year. Through November, four of the family's index funds were among the top-five-selling funds from among those with Morningstar Analyst Ratings, including Vanguard Total Stock Market Index (VTSMX) with $30 billion, Vanguard 500 Index ()(VFINX) with $20 billion, Vanguard Total International Stock Index (VTIAX) with $24 billion, and Vanguard Total Bond Market Index (VBMFX) with $19 billion.
The actively managed rated funds that got the most inflows were Gold-rated Metropolitan West Total Return Bond (MWTRX) on the fixed-income side with inflows of $17 billion and Gold-rated Dodge & Cox International Stock (DODFX) on the equity fund side with inflows of $10 billion. Metropolitan West's topnotch long-term returns and experienced managers have made it a prime destination for investors seeking PIMCO alternatives. Dodge & Cox has posted a small gain and good relative returns this year and continues its strong rebound from financial-crisis missteps.
Biggest Outflow From a Fund Not Named PIMCO
Money had already been heading out the door because of disappointing performance before Bill Gross, the bond king, abdicated his throne at PIMCO Total Return (PTTRX). His departure gave many others the excuse they were looking for to leave; the fund had seen $85 billion in outflows through the end of November of this year, by far the most in absolute terms of any fund we rate. Other funds suffered significant redemptions, too. While PIMCO's outflow amounted to about 35% of its total assets at the end of November 2013, Bronze-rated Thornburg International Value's (TGVAX) more than $13 billion in outflows over the past 12 months was 47% of its asset level 12 months ago. The fund has endured a protracted bout of poor relative performance and some manager turnover.
Dan Culloton has a position in the following securities mentioned above: VGHCX, DODFX, PTTRX, VFINX. Find out about Morningstar’s editorial policies.