Morningstar Advisor - Fall 2008 - (Page 23)

Three Cash-Heavy Funds for These Times If clients have money to invest right now or want to upgrade their management team, they might want to set their sights on funds that built up cash stakes ahead of this summer’s tumultuous market conditions, says Karen Dolan, Morningstar’s director of fund analysis. Cash is a rare commodity in a market like this. Most mutual funds are fully invested with 5% or less of their assets in cash. Funds with some cash on hand have the flexibility to pounce on deals when others are being forced to sell into the market because they are fully invested and in many cases facing shareholder redemptions. Dolan likes the three funds listed below. Each is run by able stock-pickers, has a stash of cash, and is well equipped to assess the wreckage and find attractive opportunities with it. FPA Crescent FPACX The investment professionals at FPA have been outspoken and hit the nail on the head with this crisis. Firm founder Bob Rodriguez and the fund’s manager, Steve Romick, started sounding alarm bells about subprime mortgages and financial institutions in 2005 and have been reiterating their concerns ever since while avoiding investments in the sector. The fund, which had 37.5% of assets in cash on June 30, had the added freedom to short financials (up until the recent ban) and made money by betting on the decline of MBIA and Wachovia. Fairholme FAIRX Fairholme Fund hasn’t been naked financials, but it dodged the big bullets in the sector and was also buoyed by its cash stake (13.8% as of May 31). Berkshire Hathaway BRK.A has been a longtime large holding for the fund, and although manager Bruce Berkowitz cut the position recently because of its large size and the personnel risk surrounding Warren Buffett, the holding company was still at the top of the portfolio at the end of May. Notably, Berkowitz avoided insurer American International Group AIG and now-defunct investment bank Lehman Brothers in the portfolio. More generally, he stayed away from the investment banks and brokers altogether. That caution, along with the fund’s large cash stake, has helped it weather the market’s storm in 2008 and put up strong returns over time. Yacktman YACKX This fund’s management team had been building up cash from 2004 to 2007. As of June 30, it had 12.2% of assets in cash. The fund is focused on companies that are well-capitalized and have strong leadership in their industries such as Coca-Cola KO and Procter & Gamble PG. The fund’s positioning has proved beneficial in a tumultuous 2008. And the team’s focus on industry leaders with little debt and reasonable valuations has also been effective over time. LIFE COMES AT YOU FAST ® ® That’s why we’ve built The Nationwide Lifetime Income Rider (L.inc) with such innovative solutions. This new living beneﬁt offers a guaranteed 10% annual roll-up, competitive age-based payouts and our exclusive spousal options. Plus, it has our personalized service built right in. This combination is built to last. For more on The Nationwide Lifetime Income Rider, call 877-996-3669 and enter code 56210, or visit nationwide.com/livingbeneﬁts while they do not guarantee the actual performance of the variable accounts, they do offer a level of protection against investment loss. Not a deposit, not FDIC or NCUSIF insured, not guaranteed by the institution, not insured by any federal government agency, may lose value. Variable annuities are issued by Nationwide Life Insurance Company, Columbus, Ohio. The general distributor is Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation. Nationwide, the Nationwide framemark, Life Comes at You Fast, The Nationwide Lifetime Income Rider and On Your Side are federally registered service marks of Nationwide Mutual Insurance Company. For Broker/Dealer Use Only Not For Use With The Public. VAV-0113AO 9/19/08 4:25:29 PM MorningstarAdvisor.com 23 E OR BELOW http://www.nationwide.com/livingbenefits http://www.nationwide.com/livingbenefits http://www.MorningstarAdvisor.com

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Morningstar Advisor - Fall 2008 Contents New on MorningstarAdvisor.com Letter from the Editor Contributors Inbox Are You Preparing for Higher Taxes? State of Financials Oracles of Alabama Investment Briefs Managers’ Investment Secrets Revealed Conformity Becomes a Growing Concern at American Gimme Shelter Location, Location, Location Rooted in Buffett, Going for Growth Keeping Little Company Away from the Numbers Consumer Confidence What about Natural Gas? TIPS to Beat Back Inflation Investing in Hidden Assets Funds That Have an Edge Come Tax Time Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar One for You, 19 for Me

Morningstar Advisor - Fall 2008

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