Morningstar Advisor - December 2012/January 2013 - (Page 58)

Undiscovered Manager Mark Egan in an aggregate-based mandate; I think the downside protection, because of our ability to hedge out positive duration with respect to changing Treasury interest rates, is pretty significant,” he says. Egan also manages Scout Core Bond SCCIX, which he’s led since its inception in 2001. The selection process within the funds is carried out by the Reams investment committee, which consists of Egan, Crider, and managing director Thomas Fink. Egan says that the investment process begins with the need to avoid permanent impairment in any 05/ of the funds. 11 “Our record’s not perfect—of course, nobody’s is. But over time, the one thing we are most proud of is that we’ve had very few instances where we got into trouble and lost principal for our investors,” he says. Buying Experience basically allowing the managers of this fund the latitude to have some exposure to that area,” Stringham says. Stringham said that the lengthy tenure of the Scout fixed-income team also plays a role in his firm’s decision to use the fund. In total, the investment committee members have logged 65 years with the firm and have even longer track records within the investment industry. Sjoblom also says her confidence in the Scout fixed-income funds is partly due to the talent of Egan and his colleagues. “Their strategy of making big sweeping moves in a portfolio is not something we would recommend for a less skilled manager,” she says. “It’s not an approach we recommend for everyone.” But she notes that as with any fund family, the Scout fixed-income offerings could face choppy waters ahead. “I don’t believe these guys will be insulated from a bond bear market, but they do have a strategy that might be a bit better for taking advantage of a low-return environment,” she says. When it comes to managerial skill, Egan maintains that it’s most evident in the fixed-income, rather than equity universe. “I think evidence will back me up on this, not just at this firm, but at other firms: In the fixed-income space, for a variety of reasons, you’ll find that good managers, unlike in the equity space, have a propensity to outperform significantly over time. So to just go passive, using indexes, ETFs, you are leaving a lot of return on the table,” he says. That brings him back to a key tenet of his investment philosophy: the desire to take advantage of market volatility. “We are different because we are willing to accept some volatility. A lot of managers say they like it, but they really don’t.” K Kate Stalter is an investment advisor with Portfolio LLC. She is also a columnist at RealMoney.com. Scout Core Plus Bond SCPYX $13K 11 Barclays US Agg Bond TR 12/ 09 12/ 10 12/ 11 Dec-09 Apr-10Jul-10Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Feb-10 Jun-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Intermediate-Term Bond 0.57 Dec-11 Dec-10 Category Expense Ratio (%) Morningstar Rating QQQQQ Minimum Investment $1,000 5-Yr Total Rtn (%) 9.96 5-Yr Total Rtn % Rank Cat 2 Morningstar Analyst Rating Morningstar Pillars Process Performance People Parent Price Data as of Oct. 31, 2012 TPositive TPositive TPositive TNeutral TPositive Christopher Abbruzzese, chief investment officer at Rain Capital Management in Portland, Ore., uses the Scout Core Plus and Unconstrained Bond Funds in client portfolios. “We like Scout, particularly the Unconstrained Fund. We are able to use it in a part of a defensive portfolio that needs to be less sensitive to interest rates and credit spreads,” he says. Like Morningstar’s Sjoblom, Abbruzzese praises the Scout managers’ nimbleness and agility when it comes to sidestepping interestrate and credit risk. He also likes their ability to capitalize on volatility in the fixed-income markets. Also in Oregon, Lantz Stringham of Hillsborobased Chinook Capital Management uses the Scout Core Plus Fund in about half of the firm’s client portfolios. “Within fixed income, we don’t have a separate allocation for high-yield bonds, so we’re thing that’s different is you don’t have the artificial construct of the [Barclays Capital] Aggregate Bond Index. About 80% of that index is Treasuries, agencies, and agency mortgagebacked securities, with significantly long durations, so [these are] significantly negative return profiles should interest rates increase.” The fund’s unconstrained mandate allows it to take advantage of corporates, high-yield bonds, currencies, and emerging markets and other foreign securities. In other words, there is ample room to find compelling returns as interest rates rise, Egan says. “The returns there could be significantly larger than 58 Morningstar Advisor December/January 2013 http://www.RealMoney.com

Table of Contents for the Digital Edition of Morningstar Advisor - December 2012/January 2013

Morningstar Advisor - December2012/January 2013
Contents
Contributors
Letter From the Editor
What Stands Between Me and Stupid
Why Do You Use Dynamic Funds of Funds?
Serving Clients and Community
How to Pick an ETF Managed Portfolio Strategy
Tactical View of Risk
Investments á la Carte
Investment Briefs
Unbundling ETF Managed Portfolios
Risks Loom Over Telecom Industry
Outsourcing Asset Allocation
ETF Managed Portfolios on the Rise
Age-Based Options Take Over 529 Industry
How the Landscape for Advisors Is Changing
Mark Egan Embraces Volatility
Alpha, Beta, and Now … Gamma
Performance Gaps
Gains in Momentum
Companies Where Management Teams Add Value
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Once and Future King

Morningstar Advisor - December 2012/January 2013