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Fund Watch

Brighter Outlook for Artisan Value Fund

Apple and other stocks that dragged down returns are now pushing them up.

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Artisan Value’s (symbol ARTLX) three-year results look impressive on the surface. Dig deeper, however, and you’ll see that the fund lags the broad market and ranks behind 79% of all funds that focus on large, undervalued companies. But Artisan Value’s outlook is looking brighter.

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Part of the problem has been the use of an “anti-momentum process in a momentum market,” says George Sertl, who runs the fund, a member of the Kiplinger 25, with three other managers. The quartet tilt toward out-of-favor stocks with attractive business models and solid balance sheets. They buy with a three- to five-year view and sell a stock once it moves into the top range of what they consider fair value. “We’re buying things that aren’t working and selling things that are working,” says Sertl. The fund holds 36 stocks.

The stocks that held the fund back a couple of years ago are helping it now. For example, shares of Apple sank 43% between September 2012 and June 2013, and Microsoft lagged the market by nearly 10 percentage points in 2012. Over the past year through September 5, those stocks returned 42% and 25%, respectively.

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Apple, Value’s top holding, constitutes 6% of the fund’s assets. Sertl says the managers have trimmed the fund’s holdings in Apple as the stock climbed this year. “If we hadn’t, it would be 9% to 10% of the portfolio,” he says. He emphasizes that the sales did not represent a call on Apple’s valuation. “I don’t think it’s expensive,” Sertl says.

Other winners include energy firms Apache and National Oilwell Varco, up 17% and 21%, respectively, over the past year. A gold miner and a mortgage real estate investment trust—stocks in sectors that were hurting in much of 2013—have come roaring back in recent months, too. Since the start of 2014, shares in Goldcorp have climbed 21%, and Annaly Capital Management has returned 25%. Says Sertl: “We’ve had broad success in four or five sectors.”

One stock did so well, in fact, that the managers unloaded all of their shares this year: Baker Hughes. They bought shares in the oil-services company for about $40 in 2012. In early 2014, a turnaround in the sector drove the stock price up past $60, and the managers started to sell. By the time the stock peaked at $75, they were out of the position. “It was a nice success,” says Sertl.