Morningstar Advisor - April/May 2010 - 67

Or Or Or Or Or And And And And

Morningstar category Morningstar category Morningstar category Morningstar category Morningstar category Audited expense ratio Purchase Constraints

5 Large Blend 5 Large Growth 5 Mid Value 5 Mid Blend 5 Mid Growth 5 1.00 5 Closed-New Investment / )

cash-flow analysis to value firms and then buying when stocks are trading well below his fair value estimates. Over the long term, the fund’s valuation measures have remained below that of the broader market, and its long-term record is topnotch. Tillinghast has managed this fund since its 1989 inception. Not only is he one of the most experienced managers around, he is also one of the best. Tillinghast receives research support from a team of small-cap analysts (both in Boston and in Fidelity’s international locations) and from Fidelity’s industry analysts, but he does much of the research on his own.
Dodge & Cox Stock DODGX

selection, this large-blend fund has produced returns that handily outpace the index and the competition over the past decade. The constant here is that Berkowitz remains opportunistic and moves quickly to remake his portfolio when he sees opportunity. Berkowitz’s bold moves carry risk, but his strong record gives confidence he’ll make them work.
Vanguard Windsor II VWNFX

Minimum Initial Purchase < 25,000 / Analysis 5 NA /

To uncover the long-term winners, we limited the results to funds that ranked in the top quartile of their respective categories for the trailing 10-year period. To make sure that the current team is responsible for the solid record, manager tenure is set to 10 years or more.

And And

% Rank Cat 10 Yr

/ < 25

Manager Tenure (Longest) > 10 /

Last, the screen is set to pull funds that have lower forward-looking price/earnings, price/book, and price/cash-flow measures than those of the S&P 500 Index. We use the corresponding measures of the Vanguard 500 Index Investor VFINX as a proxy. (These measures can be verified by looking up the Vanguard fund in Morningstar Office or Morningstar Principia.)

And And And

Price/Prospective Earnings Price/Prospective Book Price/Prospective Cash

< 15 < 2 < 7

Management zeros in on large-cap firms that look attractively priced on a variety of value measures. Recently, the fund sported a forward P/E of 13.6, price/book of 1.5, and price/ cash flow of 5. The team’s valuation-conscious approach often leads it to beaten-down sectors, and the managers aren’t afraid to load up. For example, the fund’s 23% stake in health-care firms was nearly twice the S&P 500’s at last count, in part because the team believes negative news on patent expirations is already priced in and health-care reform has become less likely. The fund’s contrarian streak has gotten it in trouble at times, such as when it bought financials stocks going into 2008. The fund’s process has produced a great record over the long term, though.
Fairholme FAIRX

Although five other subadvisors contribute to the fund’s stock picks, Jim Barrow of Barrow, Hanley, Mewhinney & Strauss is responsible for roughly two thirds of its assets. He focuses on approximately 50 large-cap stocks that are attractively valued and sport above-average dividend yields. Indeed, the portfolio’s forward P/E recently clocked in at 12.9, and its price/book and price/cashflow measures at 1.8 and 5.9, respectively. But just because the fund has focused on more conservatively valued fare doesn’t mean it will sit out every rally. For example, its 27% gain in 2009 beat out nearly three fourths of its large-value brethren, which was driven in part by larger-than-average stakes in industrial materials and hardware firms. Barrow has been largely responsible for the fund’s strong record since its 1985 inception, and its dividend cushion should continue to provide ballast during bumpy markets.
Karin Anderson is a mutual fund analyst with Morningstar.

As of Feb. 16, the screen pulled eight results. Here are some that stand out.
Fidelity Low-Priced Stock FLPSX

While our proxy recently had a forward P/E multiple of 15, this mid-cap blend fund’s was 12.4. And the fund’s price/book and price/ cash-flow measures, clocking in at 1.3 and 3.9, respectively, were roughly half the proxy’s at last count. Manager Joel Tillinghast runs an eclectic portfolio with hundreds of holdings. His process involves using discounted

Going his own way is the foundation of manager Bruce Berkowitz’s success. Berkowitz has run this fund since its December 1999 inception, and he’s successfully applied his Warren Buffett-style across the marketcap spectrum. As is typical, the fund’s forward P/E of 12.7—as well as its price/book and price/cash-flow measures—is well below that of the broader market. In addition to a large stake in mid-cap stocks, his willingness to buy high-yielding senior debt and hold large cash stakes has also made this fund stand out from the crowd. Thanks to strong security

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Morningstar Advisor - April/May 2010

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