Morningstar Advisor - June/July 2009 - 21

on the performance of the income-oriented funds in the conservative- and moderate-allocation categories, such as Evergreen Diversified Income Builder EKSAX. At other funds, a combination of derivatives and cash equivalents has brought unanticipated and in some cases disastrous results, Herbst says. At AIM Basic Balanced BBLAX, the fixed-income team’s decision to use derivatives to gain exposure to battered financial firms such as Lehman Brothers and mortgage insurer MBIA contributed to the fund’s 40% loss. The team backing Oppenheimer Core Bond OPIGX and Oppenheimer Champion Income OPCHX made aggressive derivatives-based bets on a wider swath of corporate issuers and nongovernment commercial mortgage-backed securities, which have since decimated those funds. That pain spread into the bond portions of allocation offerings such as Oppenheimer Capital Income OPPEX and Oppenheimer Portfolio Series Conservative OACIX, which have suffered bottom-decile losses of 38% and 39%, respectively. A version of a derivatives/cash equivalents strategy has also burned the venerable Grantham, Mayo & Van Otterloo, which subadvises Evergreen Asset Allocation EAAFX. maintaining an 18% cash hoard. Goldfarb says that they are struggling to figure out what normalized earnings should be going forward after a decade of excess profits. There certainly aren’t survival issues with any of Sequoia’s holdings. But he says that it’s tough to get a handle on future earnings power and, in turn, intrinsic-value estimates for existing and prospective holdings alike. “It struck me,” Breen writes, “that the manager of one of the best funds ever, with a 35-year record of success, is treading lightly while others have been piling back into stocks. But Goldfarb has lived through more bear markets than most, and his cautious tone gives plenty of food for thought.” Goldfarb Treading Lightly at Sequoia Senior analyst Michael Breen recently spoke with Bob Goldfarb, veteran manager of Sequoia SEQUX, and Breen wrote that Goldfarb remains very cautious. In a post on MorningstarAdvisor.com’s Markets & Economy blog, Breen writes that Goldfarb and his team have bought three stocks lately, Caterpillar CAT, De La Rue DLAR, and Ritchie Brothers RBA. But they only put a combined 4% of assets in these new names and are I DO A LITTLE MORE, SO YOUR CLIENTS APPRECIATE YOU A LOT MORE. A call from a worried advisor at the end of the day set it all into motion. His presentation the next morning needed backup. I crunched numbers and packaged it up. One thing left to do; drive it to his house. I bring you more than you’re expecting and even what you didn’t know you needed. Sometimes that means bringing it right to your doorstep. I’m Chris Braunreuther. And I am On Your Side . ® See how we can be On Your Side: 800-321-6064 or nationwide.com/solutions Company. © 2009 Nationwide Financial Services, Inc. All rights reserved. NFV-0620AO MorningstarAdvisor.com 21 5/8/09 4:37:06 PM

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Morningstar Advisor - June/July 2009

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