Morningstar Advisor - June/July 2009 - 50

Undiscovered Manager Mark Ashton this was a rare case where we did sell a whole stake over a short period of time.” Created for a Rural Coop Not a Pure Play Peter Morris Stuart Teach Homestead Value HOVLX $16K 13 10 7 Apr 08 Jun 08 Aug 08 Oct 08 Dec 08 S&P 500 Feb 09 Apr 09 Despite the occasional misstep, this concentrated, low-cash portfolio has held up reasonably well in the current bear market (as it did from 2000 to 2002). It placed in the top half of the large-cap value category in 2008 and in the top third for the 12-month period through March 2009. Over the long term is where the fund has earned its stars, though: Through the five- and 10-year periods through March, it places in the top quartile of its category. Better yet, when taxes are taken into the account, the fund’s long-term category rankings rise to the top 20%. Morris notes that all the managers have significant stakes in the fund and are well aware of the tax consequences of active trading. The fund has yet one more advantage, one that ensures it an edge over its peers in any market: a tiny 70-basis-point expense ratio. That is less than half the large-cap value norm—even though the fund’s asset base is also well-below average. It is unusual for such a small fund company that doesn’t enjoy the economies of scale of a Vanguard or a T. Rowe Price to keep shareholder costs so low. All this raises the question of why a fund with a 15-year history of excellence under the same management team has not drawn more attention. “They are unknown because they aren’t spending client money on wholesale marketing or advertising or fancy conference calls,” says Dan Henken, a senior investment consultant who provides research for advisors associated with St. Paul, Minn.-based Securian Financial Group. “They don’t come with all the pageantry.” In fact, Homestead Funds was created in 1990 as an affordable investment resource for members of the nonprofit National Rural Electric Cooperative Association, and most of the company’s assets still stem from that source. The fund does come with a caveat or two. The first is the above-average volatility that accompanies a concentrated, buy-and-hold portfolio with minimal cash. Henken says that his research team’s quantitative screens allow managers to take active risk provided it is accompanied by outperformance. He frames the volatility within the perspective of the fund’s low-turnover track record of sensible stock picks: “The managers see themselves as a fiduciary for NRECA and they are unlikely to take wild risks,” he says. The fund has not yet paid off for those who bought in on Henken’s recommendation in January 2008, but he is unshaken: “It was a good move; we are happy and still confident in them.” Investors who can still stomach stocks may not be put off by some extra volatility, but someone looking to neatly fill the large-cap value segment of the style box might consider this portfolio insufficient. Not only is it concentrated and quirky, but it has less than 30% of its assets in pure large-value stocks, and its average market cap of $19 billion is on the small side for its category. Advisor Jim Quandt, a senior partner with Fortune Financial in Minneapolis, Minn., believes that the fund’s “low expenses, low turnover, and experienced management make it an exceptional find in this category.” However, he considers the fund “a very nice complement to a more traditional large-value fund.” That said, management’s long-term results make this a suitable core holding for any investor willing to take on equity risk. The fund is certainly a boon for NRECA members and for those without much money to invest upfront—but it deserves to be known as more than just a niche product. K Laura Lallos, a former Morningstar analyst and editor, is a frequent contributor to the magazine. Category 1 Large Value Morningstar Rating Expense Ratio (%) 0.7 5-Yr Anl Total Rtn (%) –1.11 QQQQ Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Minimum Investment $500 Data as of April 30, 2009. 5-Yr Anl TR % Rank Cat 22 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 50 Morningstar Advisor June/July 2009

Morningstar Advisor - June/July 2009

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2009

Morningstar Advisr - June/July 2009
Contents
New on MorningstarAdvisor.com
Letter from the Editor
Contributors
Is SRI a Relevant Investment Strategy?
A Head for Numbers
Building a Business on SRI
Investment Briefs
The Liquidity Premium
Navigating the SRI Patchwork
Profit and Progress
How the Fed Contributes to Crises
Holding Steady
Appleseed Adds Value to SRI Formula
Four Picks for the Present
Long-Term Investors Can Find Value among Industrials
Higher Yields, Hold the Risk
Bargains in U.S. Industrials
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar
Talkin’ ‘bout a Revolution
Morningstar Advisor - June/July 2009 - 47
Morningstar Advisor - June/July 2009 - Morningstar Advisr - June/July 2009
Morningstar Advisor - June/July 2009 - Cover2
Morningstar Advisor - June/July 2009 - Contents
Morningstar Advisor - June/July 2009 - 2
Morningstar Advisor - June/July 2009 - 3
Morningstar Advisor - June/July 2009 - New on MorningstarAdvisor.com
Morningstar Advisor - June/July 2009 - 5
Morningstar Advisor - June/July 2009 - 6
Morningstar Advisor - June/July 2009 - Letter from the Editor
Morningstar Advisor - June/July 2009 - Contributors
Morningstar Advisor - June/July 2009 - 9
Morningstar Advisor - June/July 2009 - Is SRI a Relevant Investment Strategy?
Morningstar Advisor - June/July 2009 - 11
Morningstar Advisor - June/July 2009 - A Head for Numbers
Morningstar Advisor - June/July 2009 - 13
Morningstar Advisor - June/July 2009 - 14
Morningstar Advisor - June/July 2009 - Building a Business on SRI
Morningstar Advisor - June/July 2009 - 16
Morningstar Advisor - June/July 2009 - 17
Morningstar Advisor - June/July 2009 - Investment Briefs
Morningstar Advisor - June/July 2009 - 19
Morningstar Advisor - June/July 2009 - 20
Morningstar Advisor - June/July 2009 - 21
Morningstar Advisor - June/July 2009 - 22
Morningstar Advisor - June/July 2009 - The Liquidity Premium
Morningstar Advisor - June/July 2009 - 24
Morningstar Advisor - June/July 2009 - 25
Morningstar Advisor - June/July 2009 - 26
Morningstar Advisor - June/July 2009 - 27
Morningstar Advisor - June/July 2009 - 28
Morningstar Advisor - June/July 2009 - 29
Morningstar Advisor - June/July 2009 - Navigating the SRI Patchwork
Morningstar Advisor - June/July 2009 - 31
Morningstar Advisor - June/July 2009 - 32
Morningstar Advisor - June/July 2009 - 33
Morningstar Advisor - June/July 2009 - 34
Morningstar Advisor - June/July 2009 - Profit and Progress
Morningstar Advisor - June/July 2009 - 36
Morningstar Advisor - June/July 2009 - 37
Morningstar Advisor - June/July 2009 - 38
Morningstar Advisor - June/July 2009 - 39
Morningstar Advisor - June/July 2009 - How the Fed Contributes to Crises
Morningstar Advisor - June/July 2009 - 41
Morningstar Advisor - June/July 2009 - 42
Morningstar Advisor - June/July 2009 - 43
Morningstar Advisor - June/July 2009 - 44
Morningstar Advisor - June/July 2009 - 45
Morningstar Advisor - June/July 2009 - 46
Morningstar Advisor - June/July 2009 - 47
Morningstar Advisor - June/July 2009 - Holding Steady
Morningstar Advisor - June/July 2009 - 49
Morningstar Advisor - June/July 2009 - 50
Morningstar Advisor - June/July 2009 - 51
Morningstar Advisor - June/July 2009 - Appleseed Adds Value to SRI Formula
Morningstar Advisor - June/July 2009 - 53
Morningstar Advisor - June/July 2009 - 54
Morningstar Advisor - June/July 2009 - 55
Morningstar Advisor - June/July 2009 - Four Picks for the Present
Morningstar Advisor - June/July 2009 - 57
Morningstar Advisor - June/July 2009 - Long-Term Investors Can Find Value among Industrials
Morningstar Advisor - June/July 2009 - 59
Morningstar Advisor - June/July 2009 - 60
Morningstar Advisor - June/July 2009 - 61
Morningstar Advisor - June/July 2009 - Higher Yields, Hold the Risk
Morningstar Advisor - June/July 2009 - 63
Morningstar Advisor - June/July 2009 - Bargains in U.S. Industrials
Morningstar Advisor - June/July 2009 - 65
Morningstar Advisor - June/July 2009 - Mutual Fund Analyst Picks
Morningstar Advisor - June/July 2009 - 67
Morningstar Advisor - June/July 2009 - 68
Morningstar Advisor - June/July 2009 - 69
Morningstar Advisor - June/July 2009 - 50 Most Popular Equity ETFs
Morningstar Advisor - June/July 2009 - 71
Morningstar Advisor - June/July 2009 - Undervalued Stocks
Morningstar Advisor - June/July 2009 - 73
Morningstar Advisor - June/July 2009 - 74
Morningstar Advisor - June/July 2009 - 75
Morningstar Advisor - June/July 2009 - Most Popular Variable Annuities
Morningstar Advisor - June/July 2009 - 77
Morningstar Advisor - June/July 2009 - 78
Morningstar Advisor - June/July 2009 - New at Morningstar
Morningstar Advisor - June/July 2009 - Talkin’ ‘bout a Revolution
Morningstar Advisor - June/July 2009 - Cover3
Morningstar Advisor - June/July 2009 - Cover4
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