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The No-Load Fund Investor The No-Load Fund Investor

Highlights of the Current Issue
of The No-Load Fund Investor

From The No-Load Fund Investor, 5/15...

Foreign Rebound

The stock market was mixed in April and is up modestly for the year. The large-cap S&P 500 Index gained 0.9% during the month and 1.3% year to date. The small-cap Russell 2000 Index lost 2.6% in April and is now just about even with the S&P 500 for the year. However, foreign stocks continued to outperform after three years of subpar results. Case in point: the MSCI EAFE Index of foreign developed market stocks gained 3.7% in April and was ahead by an impressive 8.1% through the first four months of the year.

The best performing equity areas in April were various emerging markets, including China, Russia and Brazil. Energy stocks also bounced, though they are still down 10% to 50% over the past 12 months. Year-to-date, China and several other foreign markets have jumped, while drug stocks in the U.S. have continued to perform well (though they generally fell in April).

On average, the value funds in our database gained 0.7% in April, while the growth funds lost an average of 0.5%. Year to date, however, growth continues to lead value, 3.7% to 1.7%. In fact, of the major investable areas, the most notable underperformer has been value generally, as well as higher-quality, dividend-oriented stocks. Of course, overlap exists between large value and dividend orientation, of course.

Best Buys Changes/Commentary. Because Oakmark Global (OAKGX) is closed to new investors through brokerages (though still available directly from Oakmark Funds), we are replacing it within the Schwab and Fidelity Brokerage Best Buysmodels with Oakmark Global Select (OAKWX), which we already include in some other Best Buys models. Global Select is a focused fund, with just 20 holdings. It includes some of the favorite U.S. stocks of Bill Nygren and foreign stocks of David Herro, both excellent managers. Because of its concentration, it could be more risky than Oakmark Global, theoretically.

Causeway Funds

Causeway has been a leading name in international equity investing for mutual fund investors for more than a decade. It launched its flagship International Value Fund (CIVVX) in 2001. Since then, its original investors would have tripled their money by now, despite a 42% loss in 2008 during the height of the global financial crisis. (We include this fund in various Best Buys models.) In 2007, the firm launched Emerging Markets (CEMVX), which gained 6.6% annually in the five-year period ended April 30, 2015, beating the average annualized return of emerging market stock funds by more than four percentage points.

It has followed these with four additional funds: Global Value (CGVVX), International Opportunities (CIOVX), Global Absolute Return (CGAVX) and the new International Small Cap (CVISX), introduced last October. Causeway utilizes fundamental investing for International Value, Global Value and the developed country portion of International Opportunities. It employs a quantitative investing method for Emerging Markets, International Small Cap and the emerging market slice of International Opportunities. Global Absolute Return also uses both approaches.

On the fundamental side, Causeway is a large-cap value investor, though not a deep value stock picker that is willing to wait for as long as it takes for a company to recover. Instead, the companyís fundamental investing team seeks out temporarily downtrodden companies that it expects to recover within two years, thanks to various catalysts with the potential to improve earnings and cause a rerating of the stock to higher valuations (e.g., price/earnings ratios).

To help winnow the field, Causeway employs screens even within its fundamentally driven funds. Its first screen attempts to identify attractive foreign equity markets by comparing the dividend and earnings yields of countries with the bond yields of their local markets. The second hurdle compares stocks within industries for value, based on the total market value (equity plus debt) as compared to a measure of cash flows, and then for the strength of their per-share earnings revisions. The most highly ranked 400 (international) to 500 stocks (for global, including U.S.) from these screening methods then get put through the fundamental lens, as the firmís analysts examine industry dynamics, financial strength and the competitive landscape of each.

You can read more from our in-depth analysis of Causeway Funds in the May issue of The No-Load Fund Investor.


Model Portfolios

Sample Model Portfolio from the Current Issue
of The No-Load Fund Investor

Wealth Builder Portfolio

Fund

Obj.

Beta

% Weighting

Price Health Sciences sector 0.85 5%
Price Divsfd Small Cap Gr agg gr 1.07 10%
RiverPark Large Growth growth 1.04 5%
Vangd Total Stock Market Idx growth 1.01 15%
Amer Century MidCap Val growth 0.88 10%
Artisan Global Sm CP global 1.23* 5%
Dodge & Cox Global Stock global 1.14 5%
Causeway Int'l Value int'l 1.01 5%
Artisan Global Opps global 0.96 10%
Vangd U.S. Value gr-inc 1.01 10%
Vangd Equity Income gr-inc 0.94 10%
Fidelity New Markets Inc. bond 0.37 5%
Vanguard Prime Money Market money mkt 0.00 5%
* = Estimated
N = New this month
H = Hold
W = Change in portfolio weighting
D = Deleted this month
Average portfolio beta: 0.92
Average expense ratio: 0.77%
Since January 1, 1988, $10,000 has grown to $158,220


Best Buy Portfolios

 

Wealth Builder

Pre-Retirement

Retirement

Income & Preservation

Cash 5% 10% 15% 20%
Bonds 5% 15% 30% 60%
U.S. Equities 75% 65% 50% 15%
Int'l Equities 15% 10% 5% 5%
Portfolio returns since 1/1/88 through most recent month ($10,000 original investment) $158,220 $141,755 $106,028 $15,348
since 2/1/09
Average portfolio Beta 0.92 0.76 0.54 0.23
Average expense ratio 0.77 0.73 0.61 0.61

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