(PUB) Investing 2015

August 2015 Vol. 23 No.12

FundInvestor Research and recommendatio s for the s riou fund investo

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The Funds in Morningstar’s 401(k)

use funds from the plan provider and/or those funds charge 12 b- 1 fees that the provider collects as payment. So, we have some institutional funds you might not have access to, as well as some funds closed to new investors. However, many have near- equivalents that you can buy instead. I will list replacement suggestions if you want to find the best substitute. I haven’t listed any target-date funds. We have customized target-date funds designed specifically for Morningstar employees by our Morningstar Investor Services division. They also provide an individualized service that chooses funds for the lineup based on each individual’s situation because, even for people at Morningstar, a 23 -fund lineup can be daunting. So, let’s take a look: American Funds New World R5 RNWFX This is a fund designed to make emerging markets more palatable to the average fund investor. It has half emerging-markets equities and half developed- markets stocks. The premise is that the source of revenues matters more than the location of the stock exchange listing. Thus, the fund will buy companies domiciled in developed markets that still derive much of their business from emerging markets. It makes sense to me, and you get the added benefit of greater rule of law in most developed markets. Thus, the fund owns some companies from both groups as well as some emerging-markets debt. The effect mutes some of the extremes of emerging markets, and that makes it a very user-friendly fund. But perhaps more important is that American has great managers and analysts, and it charges just 0 . 69% for the R 5 shares. The retail A shares’ ticker is NEWFX .

RusselKinnel, Director of ManagerResearch and Editor

Fund Reports

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The funds in Morningstar’s 401 (k) are chosen for the long haul. Some of our employees may be here 30 years, and they might hold onto their 401 (k) for 20 years after that. So, we look for funds that should stand the test of time. In fact, more than half have been in the plan for more than 10 years. Two of them even predate my start date at Morningstar 20 years ago. We want funds that fit together well, though we do build in some redundancy in order to let employees make their own choices. It isn’t designed for employ- ees to own one of everything. We look for the same things any long-term investor should: stable management, a sound strategy, low expense ratios, and strong stewardship. We also seek out funds that tend to be on the less risky side of their category. Even though a 401 (k) is a long-term invest- ment, experience shows that investors in 401 (k)s have a hard time making the most of high-risk funds. They buy after the funds have gone up and sell at just the wrong time. And, of course, our 401 (k) funds have to be Morningstar Medalists. You’ll notice that our fund selections are cheaper and from a wider array of fund companies than the typical plan. That’s because Morningstar accepts most of the administrative costs rather than passing them along to employees. Typically 401 (k) providers will charge the company or its employees less if they

Harbor Mid Cap Value Janus Balanced T. Rowe Price Real Estate

Morningstar Research

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How Flows Affect Your Fund

The Contrarian

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Bank-Loan Funds Worry Me

Red Flags

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Funds Have 99 Problems, but Greece Isn’t One

Market Overview

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Leaders & Laggards

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Manager Changes and News

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Portfolio Matters 16 A T. Rowe Price Bucket Portfolio

Tracking Morningstar

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Analyst Ratings

Income Strategist

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The Other Debt Crisis

Changes to the 500

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FundInvestor 500 Spotlight

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Follow Russ on Twitter @RussKinnel

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