Morningstar Advisor - Fall 2007 - 74

Screens Tips: and and and Investor Return % Rank in Cat 10 yr Investor Return % Rank in Cat 5 yr Investor Return % Rank in Cat 3 yr < < Lg Blend Lg Growth Lg Value 4 stars You get more than 4,500 results—something is wrong. But what? It seems clear that the search is trying to isolate large-cap funds with a Morningstar Rating of 4 or 5 stars. The search function doesn’t realize that you want to apply the last statement to the three criteria above it because it works in order of operations. In this example, there are no parentheses, so it moves on to AND, looking for large-value funds that have a star rating of 4 or higher. Then the search goes to statements connected by OR—which means that after it has isolated 4- and 5-star large-value funds, it will look for all large-growth and large-blend funds, regardless of star rating. To connect the category criteria to the star rating, nest them with parentheses: Very few large-growth funds have locked in strong investor returns, especially over the past 10 years. That’s because most funds in the category attracted loads of money in the late 1990s and early 2000s. The outsized gains that drew investors in came to an abrupt halt in early 2000 and took many investors down. Brandywine Blue shareholders fared just fine, however. The average dollar invested in this fund during the past 10 years has gained an annualized 9.6%. The fund sat out the bluechip-led rally in 1998 and avoided most of the hot money that was flooding funds with the best one- and three-year records at the time. It also helped that the fund’s advisor, Friess Associates, never turned into a marketing machine that aggressively pitched the fund during the growth heyday. Instead, Friess stuck to its strategy and communicated with investors in the same responsible and straightforward manner it continues to do today. In the end, this fund and the shareholders who have stuck with it have done extraordinarily well. Victory Diversified Stock A SRVEX ( Morningstar Category or or and Morningstar Category Morningstar Category Morningstar Rating 5 5 5 > Lg Blend Lg Growth Lg Value 4 stars ) This fund’s aversion to the permanent loss of capital and its stringent valuation work have kept it from suffering too many stretches of negative returns while keeping volatility in check. And bear markets aren’t as painful here as they can be with other offerings. These traits help investors use the fund well. The fund’s investor returns are even better than its total returns. Meanwhile, the fund’s absolute-minded focus hasn’t held the fund back on the upside. It has done especially well in recent years because of its willingness to go deep into foreign markets, many of which have outdone the U.S. markets lately. It has also benefited from sizable stakes in small companies. These traits stem from the flexibility this fund has: It can keep zero to 100% of its assets in foreign stocks, and its managers pay no heed to benchmarks when constructing the portfolio. Mutual Series’ signature approach of going against the crowd, often buying out-of-favor or controversial names, further distinguishes this portfolio’s stock picks. K Karen Dolan, CFA, is a senior mutual fund analyst with Morningstar. Now we are telling the search to first do what is in the parentheses, and then move on. In this case, it will first look for large-cap funds and then isolate those with ratings of 4 stars or more. Over the trailing three-, five-, and 10-year periods, this fund’s investor returns have topped its already-strong total returns. The fund’s lead manager of 18 years, Larry Babin, has shown a knack for melding top-down macroeconomic analysis with stock-specific details to invest well. The fund’s history under his watch is full of big, brave industry bets that have paid off nicely. In late 1997, Babin loaded up on tech stocks hit during the Asian crisis, which helped Share Your Best Ideas Send us a favorite fund screen that you use in your practice. We’ll consider printing it in this space for the benefit of other advisors. Submit it to magazine_editor@morningstar.com 74 Morningstar Advisor Fall 2007

Morningstar Advisor - Fall 2007

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