Morningstar Advisor - October/November 2009 - 24

Gray Matters Superior Long-Term Returns: Although our picks had hit-and-miss results over the past five years with their sector and stock calls, these managers have shone over longer periods. Longest Tenured Manager Start Cumulative Fund Return % Cumulative S&P 500 Return % Dodge & Cox Stock DODGX Weitz Partners Value WPVLX Vanguard PRIMECAP VPMCX Sound Shore SSHFX T. Rowe Price Equity Income PRFDX Longleaf Partners LLPFX Brandywine Blue BLUEX Columbia Value & Restructuring Z UMBIX Jensen J JENSX Selected American Shares D SLADX Davis NY Venture A NYVTX Oakmark Select I OAKLX MainStay ICAP Select Equity I ICSLX Sequoia SEQUX Fairholme FAIRX Oakmark I OAKMX T. Rowe Price New America Grth PRWAX PRIMECAP Odyssey Growth POGRX Data as of June 30, 2009. January 1, 1977 June 1, 1983 November 1, 1984 May 3, 1985 October 31, 1985 April 8, 1987 January 10, 1991 December 31, 1992 January 3, 1993 December 1, 1994 October 1, 1995 November 1, 1996 December 31, 1997 June 30, 1998 December 29, 1999 March 21, 2000 July 22, 2002 November 1, 2004 4114 1635 1794 956 849 744 359 498 185 247 144 236 87 31 189 47 44 5 2352 964 924 765 749 431 291 190 188 160 101 51 15 –2 –26 –28 16 –14 quite the boom or bust we would’ve thought for two funds: Fairholme and Weitz Partners Value WPVLX. Fairholme did navigate energy well, but its avoidance of financials was far more important to its returns, by many multiples. Weitz Partners Value suffered for not owning energy early on, but energy swooned last year and the fund’s financial- and consumer-services bets cost the fund more. And the Prize Goes To … Vanguard Primecap, Fairholme, and Main Stay ICAP shone the brightest for both sector and stock selection. These funds navigated a rapidly changing environment well, which showed up as added value for a number of different sectors and stocks. Five-year attribution gives an interesting snapshot, but it doesn’t tell the complete story for the picks. Our picks (with the exception of Jensen Fund) have all posted exceptional returns versus the S&P 500 under their managers’ watch. Even those funds that didn’t score as well in our attribution analysis still possess some winning combination of strategy, stewardship, management, low costs, and a long history of success. K Karen Dolan, CFA, is Morningstar’s director of mutual fund analysis. Ben Alpert, CFA, contributed research to this article. weighed heavily on Longleaf Partners LLPFX. Selected American Shares SLADX and Davis New York Venture NYVTX were stung by flailing financials such as American International Group AIG and Citigroup C. Sector Bets Came in Second Overall, sector selection was less important of a driver than stock selection for these picks. Some picks leaned into stronger sectors and avoided weak ones while others leaned the wrong way with media, financial, and energy stocks. None of our picks failed or shone because of their technology and health-care stocks. Yet these two sectors represent a large and growing portion of our pick portfolios, so we’d expect them to be a bigger driver of returns in the next five years than they were in the past five. Energy and financials were more important to a fund’s bottom line. Combined, those two sectors made up 30% of the S&P 500 over the past five years on average, and returns in those sectors were very bumpy, so it’s no surprise that positioning in energy and financials went a long way in explaining the performance of most of our picks, for better or for worse. Sound Shore SSHFX, Fairholme, and Longleaf Partners gained the most ground by avoiding financials. All three funds missed the biggest blowups in the financials sector, and the latter two benefited from parking less money in the sector overall. Selected American Shares did a decent job picking stocks in the financials sector, but its heavy sector weighting hurt. Energy proved to be a wild card for some funds and a disaster for others. Mainstay ICAP Select Equity and Columbia Value & Restructuring UMBIX particularly benefited from their energy positionings. Interestingly, energy wasn’t 24 Morningstar Advisor October/November 2009

Morningstar Advisor - October/November 2009

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