Morningstar Advisor - Winter 2008 - 38

Spotlight Same Prospectus Objective, Different Styles Both funds call themselves “equity-income,” but their styles vary greatly. Parnassus Eqty-Inc Large Mid Small Value Blend Growth Value Blend Growth Good Style Drift, Bad Style Drift Manager Wally Weitz has found better values recently among larger companies, causing Weitz Value to move up to the large-cap row. Fidelity Low-Priced Stock, on the other hand, had to expand its investing universe to accommodate large inflows. Weitz Value Large Mid Large Mid Nicholas Eqty-Inc Large Mid Small Fidelity Low-Priced Stock Large Mid Large Mid Small Small Small Small Value Blend Growth Value Blend Growth Value Blend Growth Value Blend Growth Nov. 30, 2007 Dec. 31, 2007 Dec. 31, 2000 Sept. 9, 2007 Dec. 31, 2000 July 31, 2007 H Fund centroid represents weighted average of domestic stock holdings Zone represents 75% of fund’s domestic stock holdings Weitz at Weitz Value WVALX and Weitz Partners Value WPVLX, have found attractive picks among larger companies, even though their funds’ holdings have concentrated most heavily in the mid-cap range. Thus, their strategies have remained consistent, but their style box and category placement has migrated to the large-cap row from their former homes in the mid-cap portion of the box. Weitz’s funds’ “graduation” into large-cap areas of the style box and categories is consistent with his bargain-hunting strategy. Moreover, the funds’ embrace of large caps doesn’t coincide with a dramatic increase in asset size. In such a situation, it makes sense to be agnostic about a style-box change. However, Morningstar analysts will tend to be more critical if a fund’s style-box shift truly signals that a fund is departing from an approach that has served it well in the past. If a fund’s style box changes because it has grown too large or because the manager appears to be chasing performance, that can and should prompt further scrutiny. For example, Fidelity Low-Priced Stock FLPSX, which once landed in the small-value square of the style box, increasingly focused on midsize and larger-sized companies as assets piled up. The fund remained a good investment—and still does. But we urged Fidelity to close it so manager Joel Tillinghast could continue to make room for the small fry that had fueled the fund’s returns earlier in its life. Style Specific or Go Anywhere? Your Choice Morningstar has no standing predilection for style-specific funds versus offerings with more flexible mandates. We can name strong-performing examples of both types, and we don’t believe that one will deliver better returns than the other. For example, Turner Midcap Growth TMGFX, a focused play on its namesake sector, has long been one of our Analyst Picks. But so has Vanguard Primecap VPMCX, a more-freewheeling fund whose holdings typically include both growth and value names in a variety of capitalization sizes. We’ve seen investors succeed—and fail—by buying only style-specific funds, by buying more-free-wheeling funds, or combining the different types. Don’t Be a Total Square far. It’s unnecessary to buy a fund from every square of the equity or fixed-income style box. Investors can have difficulty monitoring so many fund holdings, for one thing. Plus, most funds tend to have holdings that land in a few different squares of the style box. The holdings of Fairholme Fund FAIRX, for example, land in six of the nine squares of the style box. The Morningstar Ownership Zone helps investors see a fund’s real investment universe. Finally, one of the big risks of owning too many funds is that investors could end up with a portfolio that looks and behaves a lot like a broad-market index fund but costs a lot more than a pure index vehicle. Takeaways Morningstar doesn’t police funds’ investment styles. Good managers can and do move around the style box, and that’s fine with us as long as such shifts are driven by where a manager is spotting opportunities rather than by performance chasing or asset bloat. Rather than using the style box to “box managers in,” the tool is most useful as a descriptor: to tell how a fund is investing, how it’s performing, and how it fits within a diversified investment plan. K Christine Benz is Morningstar’s director of fund analysis. Even though the style box can be an effective tool for ensuring that a portfolio is well diversified, investors can take a good thing too 38 Morningstar Advisor Winter 2008

Morningstar Advisor - Winter 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Winter 2008

Morningstar Advisor - Winter 2008
Contents
Letter from the Editor
Inbox
How Do You Use the Morningstar Style Box?
Real Estate Investing Goes Global
The Golden Touch
Investment Briefs
Learning to Fly with Equity Options
Another Block in Building a Portfolio
In a League of Their Own
Unlock the Box
Fashion Change
The View from the Investment Side
Unpredictable Style
Weighting the Fundamentals
Wire-to-Wire Consistency
The Secret's Out
Focus on Financials
Strongest Homebuilders Will Withstand the Wrecking Ball
Breaking Style Conventions
Playing It Safe with Financials
Back to Bond School
Mutual Fund Analyst Picks
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar
The Style Counsel
Morningstar Advisor - Winter 2008 - Intro
Morningstar Advisor - Winter 2008 - Morningstar Advisor - Winter 2008
Morningstar Advisor - Winter 2008 - Cover2
Morningstar Advisor - Winter 2008 - 1
Morningstar Advisor - Winter 2008 - 2
Morningstar Advisor - Winter 2008 - Contents
Morningstar Advisor - Winter 2008 - 4
Morningstar Advisor - Winter 2008 - 5
Morningstar Advisor - Winter 2008 - 6
Morningstar Advisor - Winter 2008 - Letter from the Editor
Morningstar Advisor - Winter 2008 - 8
Morningstar Advisor - Winter 2008 - Inbox
Morningstar Advisor - Winter 2008 - How Do You Use the Morningstar Style Box?
Morningstar Advisor - Winter 2008 - 11
Morningstar Advisor - Winter 2008 - Real Estate Investing Goes Global
Morningstar Advisor - Winter 2008 - 13
Morningstar Advisor - Winter 2008 - 14
Morningstar Advisor - Winter 2008 - The Golden Touch
Morningstar Advisor - Winter 2008 - 16
Morningstar Advisor - Winter 2008 - 17
Morningstar Advisor - Winter 2008 - Investment Briefs
Morningstar Advisor - Winter 2008 - 19
Morningstar Advisor - Winter 2008 - 20
Morningstar Advisor - Winter 2008 - 21
Morningstar Advisor - Winter 2008 - Learning to Fly with Equity Options
Morningstar Advisor - Winter 2008 - 23
Morningstar Advisor - Winter 2008 - 24
Morningstar Advisor - Winter 2008 - 25
Morningstar Advisor - Winter 2008 - Another Block in Building a Portfolio
Morningstar Advisor - Winter 2008 - 27
Morningstar Advisor - Winter 2008 - 28
Morningstar Advisor - Winter 2008 - 29
Morningstar Advisor - Winter 2008 - In a League of Their Own
Morningstar Advisor - Winter 2008 - 31
Morningstar Advisor - Winter 2008 - 32
Morningstar Advisor - Winter 2008 - 33
Morningstar Advisor - Winter 2008 - 34
Morningstar Advisor - Winter 2008 - 35
Morningstar Advisor - Winter 2008 - Unlock the Box
Morningstar Advisor - Winter 2008 - 37
Morningstar Advisor - Winter 2008 - 38
Morningstar Advisor - Winter 2008 - 39
Morningstar Advisor - Winter 2008 - Fashion Change
Morningstar Advisor - Winter 2008 - 41
Morningstar Advisor - Winter 2008 - 42
Morningstar Advisor - Winter 2008 - 43
Morningstar Advisor - Winter 2008 - The View from the Investment Side
Morningstar Advisor - Winter 2008 - 45
Morningstar Advisor - Winter 2008 - 46
Morningstar Advisor - Winter 2008 - 47
Morningstar Advisor - Winter 2008 - 48
Morningstar Advisor - Winter 2008 - 49
Morningstar Advisor - Winter 2008 - 50
Morningstar Advisor - Winter 2008 - 51
Morningstar Advisor - Winter 2008 - Unpredictable Style
Morningstar Advisor - Winter 2008 - 53
Morningstar Advisor - Winter 2008 - Weighting the Fundamentals
Morningstar Advisor - Winter 2008 - 55
Morningstar Advisor - Winter 2008 - 56
Morningstar Advisor - Winter 2008 - 57
Morningstar Advisor - Winter 2008 - 58
Morningstar Advisor - Winter 2008 - 59
Morningstar Advisor - Winter 2008 - 60
Morningstar Advisor - Winter 2008 - 61
Morningstar Advisor - Winter 2008 - Wire-to-Wire Consistency
Morningstar Advisor - Winter 2008 - 63
Morningstar Advisor - Winter 2008 - 64
Morningstar Advisor - Winter 2008 - 65
Morningstar Advisor - Winter 2008 - The Secret's Out
Morningstar Advisor - Winter 2008 - 67
Morningstar Advisor - Winter 2008 - 68
Morningstar Advisor - Winter 2008 - 69
Morningstar Advisor - Winter 2008 - Focus on Financials
Morningstar Advisor - Winter 2008 - 71
Morningstar Advisor - Winter 2008 - 72
Morningstar Advisor - Winter 2008 - 73
Morningstar Advisor - Winter 2008 - Strongest Homebuilders Will Withstand the Wrecking Ball
Morningstar Advisor - Winter 2008 - 75
Morningstar Advisor - Winter 2008 - Breaking Style Conventions
Morningstar Advisor - Winter 2008 - 77
Morningstar Advisor - Winter 2008 - Playing It Safe with Financials
Morningstar Advisor - Winter 2008 - 79
Morningstar Advisor - Winter 2008 - 80
Morningstar Advisor - Winter 2008 - Back to Bond School
Morningstar Advisor - Winter 2008 - 82
Morningstar Advisor - Winter 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Winter 2008 - 84
Morningstar Advisor - Winter 2008 - 85
Morningstar Advisor - Winter 2008 - 86
Morningstar Advisor - Winter 2008 - 87
Morningstar Advisor - Winter 2008 - Undervalued Stocks
Morningstar Advisor - Winter 2008 - 89
Morningstar Advisor - Winter 2008 - 90
Morningstar Advisor - Winter 2008 - 91
Morningstar Advisor - Winter 2008 - Most Popular Variable Annuities
Morningstar Advisor - Winter 2008 - 93
Morningstar Advisor - Winter 2008 - New at Morningstar
Morningstar Advisor - Winter 2008 - 95
Morningstar Advisor - Winter 2008 - The Style Counsel
Morningstar Advisor - Winter 2008 - Cover3
Morningstar Advisor - Winter 2008 - Cover4
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