Morningstar Advisor - February/March 2009 - (Page 59) Mutual Fund PIMCO All Asset D PASDX $19K 17 15 13 S&P 500 TR above the comparable moderate-allocation category median 0.95% charge, but it’s a step in the right direction and improves its appeal. Beyond improved costs, the approach taken at this fund, managed by Rob Arnott of subadvisor Research Affiliates, LLC, should hold considerable interest for investors struggling through the recent market downturn because of the fund’s inflation-fighting focus and absolute-return orientation. Arnott seeks to best the Consumer Price Index by at least 5% and beat the Lehman Brothers U.S. TIPS: 1–10 Year Index over a full economic cycle. To accomplish this, he uses quantitative models that suggest rotations between asset classes, such as inflation-linked securities, commodities, emerging-markets debt, real estate, equities, and other fixed-income sectors, in search of the mix he thinks will effectively meet fund goals. In the wake of the worst stage of the subprimemortgage meltdown and liquidity crisis, the fund saw results suffer as return correlations converged between almost all asset classes, with only Treasuries staying out of negative territory. The fund’s positions in inflation-linked bonds and emerging-markets debt saw losses resulting from diminished inflation expectations and risk aversion, respectively. Still, a low level of equity exposure (7% of assets, compared with the category average 56%), insulated it from the worst damage. Lawrence Jones K 03 04 05 06 07 08 Our hesitation in recommending this fund of funds more forcefully involves the high relative costs of some of its share classes. Recently, however, PIMCO committed to dropping the administration and supervisory fees on the fund’s no-load D share class by 20 basis points (0.20%), making it more competitive. It will still carry a levy likely to be May-03 May-04 May-05 May-06 May-07 May-08 Jun-03Mar-04Dec-04Sep-05Jun-06Mar-07Dec-07Sep-08 Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Aug-03 Jun-04Mar-05Dec-05Sep-06Jun-07Mar-08Dec-08 Sep-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Oct-03 Aug-04 Jun-05Mar-06Dec-06Sep-07Jun-08 Nov-03 Sep-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Dec-03 Oct-04 Aug-05 Aug-06 Aug-07 Aug-08 Jan-04 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Feb-04 Feb-05 Feb-06 Feb-07 Feb-08 Hindsight: Spring 2007 A big miss and a good call from the first issue of Morningstar Advisor. Municipal Mortgage & Equity LLC MMAB (formerly MMA) 1.25 $1 Royce Special Equity Investor RYSEX 1.00 .50 $1 S&P 500 0.75 0.50 .75 04/07 12/08 04/07 12/08 There’s no sugarcoating it: We missed the boat on this pick. It has gone nearly to We’re not surprised this small-value fund has handled a brutal market better than zero since we recommended it and has been delisted from the New York most. It’s run by Charlie Dreifus, a veteran value hound with an eye for quality. Stock Exchange. It now trades over the counter under the ticker MMAB. Unlike While many managers are now putting firms’ balance sheets under a microscope, other mortgage-related business, Munie Mae, as it is referred to, didn’t originate or Dreifus has always done so. He has always insisted on firms with low debt, piles of hold any subprime debt. Rather, it was crushed when capital markets froze up, cash, and steady returns on invested capital. That’s a recipe for success in any eliminating sources of funding for its financing activities to developers. market but is especially valuable in an economic downturn. And like all Royce Compounding matters has been the ongoing restatement of the firm’s financial managers, Dreifus isn’t afraid to sit on cash when bargains are scarce. The fund has statements, a costly drain on human resources and a barrier to the firm’s effort to benefitted from several holdings being acquired at premiums over the past year, and access capital. Munie Mae relies on warehouse lines of credit from banks, the proceeds have been mostly kept in cash, which now accounts for 22% of and the lack of audited financials has caused funding to evaporate or to Jan-09 at be reset assets. This fund is in the red since we first recommended it, but it’s down less than May-07 muchJul-07Sep-07 killer combination inMay-08 credit market. The original higher Oct-07 Jan-08 Apr-08 Jul-08Sep-08 Dec-08 nearly all its rivals and the overall market. This fund has a stellar long-term risk/ Jun-07 rates: A Dec-07 Mar-08 illiquid Aug-08 Nov-08 Aug-07 Nov-07 Feb-08 an Jun-08 Oct-08 appeal of Munie Mae was its strong and predictable dividend stream. That is long reward profile, and we continue to recommend it. Michael Breen S&P 500 gone, and a lack of audited financial statements makes it impossible to asses the firm’s value. Michael Breen Apr-07 Dec-08 May-07Jul-07Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Jun-07 Aug-07 Nov-07 Feb-08 May-08Jul-08 Oct-08 Oct-07 Jan-08 Apr-08 Aug-08 Nov-08 MorningstarAdvisor.com 59 http://www.MorningstarAdvisor.com
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