Morningstar Advisor - Summer 2007 - 50

Undiscovered Managers Chase Growth CHASX Growth of $10,000 Fund Large Growth $20K 16 12 03 05 07 S&P 500 started passing its quantitative screens in early 2005. When the team’s fundamental analysis synched up with the promising quantitative trends, it built a significant energy stake. That paid off for shareholders well before other growth funds picked up on the theme. Even so, the Chase approach struggled in 2006 and has had a hard time thus far in 2007. That owes to the market’s back and forth moves, which significantly weaken the power of the team’s technical analysis. While the quantitative portion is a big help when the market is moving decidedly in one direction, it can hold the funds back when volatility spikes. The quantitative portion of the strategy has potential to butt heads with the team’s fundamental analysts. The analysts admit the combination can feel constricting at times, but they buy into its power and point to how well it has helped the fund on the downside by adding rigor to their sell discipline. “The technical indicators and fundamental analysis often conflict on the sell side,” analyst Peter Wood says. “More than half the time, we sell for straight technical reasons. Fundamentally, the stock may look just fine.” Testing Conviction The team consequently cut back its exposure far sooner than their fundamental analysis would have, and it paid off. Chase Growth landed in the top quartile of its large-cap growth rivals in 2000, 2001, and 2002. It actually gained money in 2000, and although it lost 13.7% in 2001 and 13.5% in 2002, the losses were far less severe than those of its peers. Perhaps it is the firm’s institutional roots or Scott’s Chartered Investment Counselor designation, but he credits the existence of investment policy statements for helping him keep a steadfast focus on the firm’s process and philosophy. When thinking back to the late 1990s, Scott says, “Everybody knew that from a policy perspective it wasn’t prudent to be at the extreme upper end of growth weighting, with so much in the most volatile sector. Returns were so great that a lot of investors lost sight of that.” Scott hasn’t lost sight of his mission. His approach to investing offers a consistent pour of quantitative data and qualitative analysis that can quench any investment thirst. K Category 5-Year Total Return % Large Growth Minimum Investment ($) 7.05 5-Year Investor Rtrn %* 2,000 Expense Ratio (%) 8.15 Investor Rtrn % Rank Cat 1.17 Stewardship 37 — * Data as of May 31, 2007 Dollar-weighted return that measures how the typical investor in the fund fared. the firm’s quantitative screens, and the team’s analysts confirmed its budding prospects by identifying drivers that were likely to continue paying off for Coach. The stock had all the characteristics Scott likes to see: It was exhibiting strong earnings growth and high returns on equity with a reasonable P/E. Moreover, its price had shown recent strength. The team’s qualitative work rounded out the thesis, and Coach was added to Chase Growth’s portfolio during the first quarter 2003. It was a unique pick among large-cap portfolios at the time, because it landed in the midcap space. Since then, Coach has been a boon for the fund’s shareholders. Coach may not have crossed the team’s radar when it did if the squad paid a lot of attention to the makeup of the Russell 1000 Growth Index, or some other benchmark. Instead, the team runs the entire universe of stocks through its quantitative models and is willing to add any stock to Chase Growth with a market cap greater than $10 billion. Considering the whole equity universe fair game has helped the team spot growth in nontraditional areas. Energy stocks, for example, Karen Dolan, CFA, is a mutual fund analyst with Morningstar. If there were any lingering doubts among the analysts, the boom and bust of the late 1990s and early 2000s laid them rest. The period was a good test for Chase and other growth funds, and it cemented the all-weather appeal of Chase’s investment philosophy. In 2000, most go-go growth stocks did a 180-degree turn, and the firm’s quantitative process turned decidedly negative on many of the holdings in Chase Growth. The team’s analysts were still comfortable with the fundamentals of the technology and telecomm companies that were spiraling downward, but the technical side was sounding warnings. “We were saying that the fundamentals are intact,” Wood remembers, “but the market was saying something else.” 50 Morningstar Advisor Summer 2007

Morningstar Advisor - Summer 2007

Table of Contents for the Digital Edition of Morningstar Advisor - Summer 2007

Morningstar Advisor - Summer 2007
Contents
Letter from the Publisher
Get to Know the Bond “All-Stars”
Research Briefs
Our Stewardship Test Gets Tougher
Save It for Later
Too Many Oranges
Best of Both Worlds
No Two Clients Are Alike
When It Comes to VAs, It’s Seller Beware
Hands On: Finding the Suitable Fund Share Class for Your Client
Fund Style Can Drift Off Course
Sticking to Their Style, Through Thick and Thin
Marathon Man
Growth, With a Chaser
A Menu of Ideas to Fill Five Market Baskets
Funds: Finding Funds with Conviction
Stocks: So You Say You Want Income?
All Eyes on China
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
What’s New at Morningstar and on the Web
The Advisor’s Economic Moat
Morningstar Advisor - Summer 2007 - Intro
Morningstar Advisor - Summer 2007 - Morningstar Advisor - Summer 2007
Morningstar Advisor - Summer 2007 - Cover2
Morningstar Advisor - Summer 2007 - Contents
Morningstar Advisor - Summer 2007 - 2
Morningstar Advisor - Summer 2007 - 3
Morningstar Advisor - Summer 2007 - 4
Morningstar Advisor - Summer 2007 - Letter from the Publisher
Morningstar Advisor - Summer 2007 - 6
Morningstar Advisor - Summer 2007 - 7
Morningstar Advisor - Summer 2007 - Get to Know the Bond “All-Stars”
Morningstar Advisor - Summer 2007 - 9
Morningstar Advisor - Summer 2007 - Research Briefs
Morningstar Advisor - Summer 2007 - 11
Morningstar Advisor - Summer 2007 - Our Stewardship Test Gets Tougher
Morningstar Advisor - Summer 2007 - 13
Morningstar Advisor - Summer 2007 - Save It for Later
Morningstar Advisor - Summer 2007 - 15
Morningstar Advisor - Summer 2007 - Too Many Oranges
Morningstar Advisor - Summer 2007 - 17
Morningstar Advisor - Summer 2007 - Best of Both Worlds
Morningstar Advisor - Summer 2007 - 19
Morningstar Advisor - Summer 2007 - 20
Morningstar Advisor - Summer 2007 - No Two Clients Are Alike
Morningstar Advisor - Summer 2007 - When It Comes to VAs, It’s Seller Beware
Morningstar Advisor - Summer 2007 - 23
Morningstar Advisor - Summer 2007 - 24
Morningstar Advisor - Summer 2007 - 25
Morningstar Advisor - Summer 2007 - 26
Morningstar Advisor - Summer 2007 - 27
Morningstar Advisor - Summer 2007 - 28
Morningstar Advisor - Summer 2007 - Hands On: Finding the Suitable Fund Share Class for Your Client
Morningstar Advisor - Summer 2007 - 30
Morningstar Advisor - Summer 2007 - 31
Morningstar Advisor - Summer 2007 - 32
Morningstar Advisor - Summer 2007 - 33
Morningstar Advisor - Summer 2007 - Fund Style Can Drift Off Course
Morningstar Advisor - Summer 2007 - 35
Morningstar Advisor - Summer 2007 - 36
Morningstar Advisor - Summer 2007 - Sticking to Their Style, Through Thick and Thin
Morningstar Advisor - Summer 2007 - 38
Morningstar Advisor - Summer 2007 - 39
Morningstar Advisor - Summer 2007 - 40
Morningstar Advisor - Summer 2007 - 41
Morningstar Advisor - Summer 2007 - 42
Morningstar Advisor - Summer 2007 - Marathon Man
Morningstar Advisor - Summer 2007 - 44
Morningstar Advisor - Summer 2007 - 45
Morningstar Advisor - Summer 2007 - 46
Morningstar Advisor - Summer 2007 - 47
Morningstar Advisor - Summer 2007 - Growth, With a Chaser
Morningstar Advisor - Summer 2007 - 49
Morningstar Advisor - Summer 2007 - 50
Morningstar Advisor - Summer 2007 - 51
Morningstar Advisor - Summer 2007 - A Menu of Ideas to Fill Five Market Baskets
Morningstar Advisor - Summer 2007 - 53
Morningstar Advisor - Summer 2007 - 54
Morningstar Advisor - Summer 2007 - 55
Morningstar Advisor - Summer 2007 - 56
Morningstar Advisor - Summer 2007 - 57
Morningstar Advisor - Summer 2007 - Funds: Finding Funds with Conviction
Morningstar Advisor - Summer 2007 - 59
Morningstar Advisor - Summer 2007 - Stocks: So You Say You Want Income?
Morningstar Advisor - Summer 2007 - 61
Morningstar Advisor - Summer 2007 - 62
Morningstar Advisor - Summer 2007 - All Eyes on China
Morningstar Advisor - Summer 2007 - 64
Morningstar Advisor - Summer 2007 - 65
Morningstar Advisor - Summer 2007 - 66
Morningstar Advisor - Summer 2007 - 67
Morningstar Advisor - Summer 2007 - Mutual Fund Analyst Picks
Morningstar Advisor - Summer 2007 - 69
Morningstar Advisor - Summer 2007 - 70
Morningstar Advisor - Summer 2007 - 71
Morningstar Advisor - Summer 2007 - Undervalued Stocks
Morningstar Advisor - Summer 2007 - 73
Morningstar Advisor - Summer 2007 - Most Popular Variable Annuities
Morningstar Advisor - Summer 2007 - 75
Morningstar Advisor - Summer 2007 - What’s New at Morningstar and on the Web
Morningstar Advisor - Summer 2007 - 77
Morningstar Advisor - Summer 2007 - 78
Morningstar Advisor - Summer 2007 - 79
Morningstar Advisor - Summer 2007 - The Advisor’s Economic Moat
Morningstar Advisor - Summer 2007 - Cover3
Morningstar Advisor - Summer 2007 - Cover4
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