(PUB) Investing 2016

14

Fund News

Fund Manager Changes

Fidelity Municipal Income FHIGX Date: 05/02/2016 Lead manager Jamie Pagliocco stepped down from the firm’s muni funds to take a position heading the firm’s fixed-income trading group. Comanagers Mark Sommer and Kevin Ramundo, who have managed muni funds at the firm since 2002 and 2010, respectively, were named managers on the firm’s entire suite of muni funds. Joining the duo as a new portfolio manager is Cormac Cullen, a senior member of the firm’s muni research team. Our Take: We have faith in the seasoned team that Pagliocco leaves behind and are encouraged that past transitions in Fidelity’s muni group have been quite smooth. We are maintaining our Œ rating on the fund. Impact: Negative Date: 03/31/2016 Gibson Smith left Janus. Comanager Darrell Waters took over as lead manager. Our Take: We have downgraded the funds to ˇ as this is a big blow to two formerly appealing funds. Smith built up Janus’ bond effort over the past 12 years and was vital to the team. Impact: Negative Date: 03/23/2016 Bob Goldfarb stepped down as comanager in the wake of the implosion of top holding Valeant Pharmaceuticals VRX. Sequoia explained that decision-making was too centralized and didn’t give enough room for analyst input. Our Take: Goldfarb achieved a lot for investors even though he may be best remembered for the Valeant mess. Moreover, the latest bad news on Valeant makes it clear that Sequoia’s thesis was wrong—up until this point we didn’t know if Valeant’s problems were small or large. We have lowered our rating to ´ from Gold. Impact: Negative Date: 07/01/2016 Manager Taymour Tamaddon is moving to run T. Rowe Price Institutional Large Cap Growth TRLGX. Ziad Bakri will take his place on July 1, 2016. Bakri has been a healthcare analyst with the firm since 2011. He is an M.D. and had previously worked as a biotech analyst for Cowen and Co. Our Take: This is a challenge for T. Rowe because it follows the loss of a manager and two healthcare analysts in 2014. The firm says it plans to hire additional analysts. This is Bakri’s first time serving as a portfolio manager. Impact: Negative Date: 10/01/2016 Greg McCrickard is set to retire in October. He will be replaced by Frank Alonso, who has been an associate portfolio manager on the fund since 2013. Alonso has been with T. Rowe Price since 2000. Our Take: We don’t have much of a track record to go by for Alonso, so it’s a big drop from the proven McCrickard. We lowered our rating to ˇ from Silver. Date: 01/28/2016 James Troyer has stepped down as manager. Binbin Guo was promoted to comanager, and he will run the fund along with Michael Roach and James Stetler, who were named comanagers in 2012. Troyer will remain on the team, however. This is Guo’s first time as a named manager, but he has been with Vanguard since 2007 and has headed the equity research and portfolio strategy team at Vanguard’s Quantitative Equity Group since 2010. Our Take: Troyer is still on the team, so this doesn’t alter our view of the fund. Virtus Foreign Opportunities JVIAX Former Morningstar Fund Manager of the Year winner Rajiv Jain is leaving subadvisor Vontobel to set up his own firm. Matthew Benkendorf, who has been at Vontobel for 17 years, is taking over. Benkendorf signed a 10-year contract when Jain resigned, so we can at least be sure that he won’t be following Jain. We don’t yet know if any of the team’s analysts will leave. Our Take: Losing Jain is a big blow, though Benkendorf is experienced and a fair amount of the team will most likely remain in place. We lowered ratings for both funds to ´ from Silver. Impact: Neutral Janus High-Yield JAHYX and Janus Flexible Bond JAFIX Sequoia SEQUX T. Rowe Price Health Sciences PRHSX T. Rowe Price Small-Cap Stock OTCFX Vanguard Strategic Equity VSEQX Impact: Neutral Virtus Emerging Markets Opportunities HEMZX Impact: Negative Date: 05/31/2016

Fund Fees Declining U.S. investors paid lower fund expenses in 2015 than ever before. For open-end and exchange-traded funds combined, the asset-weighted average expense ratio across funds (excluding money market funds and funds of funds) was 0 . 61% in 2015 , down from 0 . 64% in 2014 and 0 . 73% five years ago. This decline stems from investor demand for cheaper passive funds (index funds and ETF s) and strong flows into institutional share classes, which carry lower fees. Vanguard also contributed to average fee declines, as its low-cost passive funds continue to attract large flows. The asset-weighted average expense ratio is a better measure of the average cost borne by investors than a simple average (or equal-weighted average), which can be skewed by a few outliers, such as high-cost funds that have low asset levels. In 2015 , the simple average expense ratio for all funds was 1 . 17% , but funds with an expense ratio above that level held just 8% of fund assets at the end of 2015 . If we look at the largest 1 , 000 share classes, which account for about 75% of assets in mutual funds and ETF s, the simple average expense ratio remained at 0 . 64% from 2013 through 2015 , as some fees go up and some go down. This finding suggests that, in aggregate, changes in the fees set by asset manage- ment firms across the industry are not contributing to the falling asset-weighted average expense ratio. Indeed, active funds have seen larger asset-weighted average fee declines when compared with passive funds. This might lead to the conclusion that fee declines among active funds are driving overall fee declines, but this has not been the case. Instead, it has been flows out of more-expensive funds (often active funds) and into cheaper funds (primarily passive funds) that have resulted in lower asset-weighted average fund fees.