Word: funding
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Dates: during 2000-2009
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While investors in those funds should feel euphoric, S&P is quick to issue a warning to investors who might fall victim to those seductive returns. The S&P report, issued Friday, indicates that many of the best-performing funds relied on short-term strategies and paid little attention to the underlying fundamentals of the stocks in their portfolios, which could lead to a performance problem in 2010. "Using only a backward-looking approach to selecting funds [i.e., past performance] has significant flaws because it ignores the fundamentals of the stocks owned by the fund along with relevant risk...
...research team cited Hotchkis & Wiley Mid-Cap Value Fund, Legg Mason Capital Management Opportunities Trust and Fidelity Select Automotive Portfolio as examples of funds that had eye-popping 2009 returns, but are currently ranked as two-star funds...
...Hotchkis & Wiley Mid-Cap Value Fund is up 52% so far this year, making it the fifth-best performing mid-cap value fund this year, according to Morningstar. However, S&P believes the fund's "volatile longer-term performance should give investors cause for concern." It noted that the fund significantly lagged its peer average in 2007 and 2008, pushing it into the bottom quartile on a three- and five-year total return basis. Also, S&P analysts contend the fund's securities are currently overvalued and pose risk based on their growth and consistency when it comes to historical...
However, Stan Majcher, principal and portfolio manager of the Hotchkis & Wiley Mid-Cap Value Fund, disagrees. Majcher noted that his fund has a strong long-term performance record, as Morningstar currently ranks it the third best performing mid-cap fund when it comes to annualized returns over the past 10 years, with an annualized return of 10.85%. He acknowledges the fund underperformed in 2007 and 2008, but doesn't think these periods should be considered in isolation. (Read about the financial crisis after one year...
Majcher says his fund's strategy is to seek out stocks that are wrongly considered risky or overvalued. "We screen for and invest in securities that are misunderstood," he says. "We'll tend to have stocks that look like they have poor characteristics, but when you dig a lot deeper, they don't." He said many of these companies have "temporary issues" that will go away and lead to higher stock performance. His portfolio trades at less than 10 times earnings, which is not overvalued, Majcher contends. "The portolio trades at less than 10 times earnings and the market trades...