(PUB) Investing 2016

15

May 2016

Morningstar FundInvestor

During the past five years, low-cost funds have attracted strong inflows at the expense of pricier funds. Funds with expense ratios ranking in the least-expensive quintile of all funds (“low-cost funds”) attracted an aggregate $1 . 7 trillion of estimated net inflows, compared with $372 billion of net outflows for funds in the remaining four quintiles (“more-expensive funds”) during that time period. Within the lowest-cost quartile, passive funds have accounted for an average 75% of flows during the past five years, with active funds accounting for the remaining 25% . More recently, the pattern of flows has diverged even more; in 2015 , low-cost funds saw $303 billion in inflows, while more-expensive funds suffered $260 billion in outflows. This largely explains the 3 -basis- point decrease in the asset-weighted average fund expense ratio to 0 . 61% in 2015 . Sequoia Reopens Sequoia SEQUX reopened to new investors on April 29 in the wake of outflows and poor performance. Manager David Poppe had said earlier in the month that he was considering reopening the fund: “We’ve had a number of requests from investors who would like to get into the fund at these levels, so we are considering recommending to the board that Sequoia reopen in the proximate future.” Poppe wrote in his latest letter to shareholders: “Prospective investors should keep in mind the fund has significant unrealized capital gains and should consult with their tax advisors before investing.” Foreign Stocks Draw Most Money Foreign large-blend funds drew $21 . 2 billion in net new purchases in the first quarter of 2016 to lead the fund world in flows. Intermediate bond ( $16 . 7 billion) and large blend ( $7 . 6 billion) followed. Nontraditional bond was hardest hit with $10 . 7 billion in outflows, followed by large growth and world allocation with $10 . 2 billion and $8 . 5 billion in outflows, respectively.

Viewed by fund company, Vanguard took in $55 billion in net inflows, followed by DFA with $7 . 6 billion and DoubleLine with $6 billion. American Funds was note- worthy with $4 . 8 billion in inflows, as the firm had been suffering outflows in recent years. T. Rowe Price Small-Cap Stock Downgraded T. Rowe Price Small-Cap Stock OTCFX manager Greg McCrickard announced he’ll step down from the fund as of Oct. 1 , 2016 , after a successful 24 -year tenure. He’ll remain at the firm in a role mentoring analysts. As a result of the change, the fund’s Morningstar Analyst Rating has dropped to Neutral from Silver. Successor Frank Alonso joined T. Rowe in 2000 and has worked alongside McCrickard since 2013 as the fund’s associate portfolio manager. That role gives him familiarity with the fund’s holdings, and he’ll benefit from a six-month transition period. His experi- ence as a diversified manager dates back to October 2013 , when he took over the T. Rowe Price US Smaller Companies Equity strategy, which is available to investors outside the United States. During his tenure through March 2016 , it outperformed its Russell 2500 benchmark by nearly 2 percentage points annualized. It’s encouraging that Alonso posted good results during his short tenure at T. Rowe Price US Smaller Companies Equity, though there are some differ- ences. That strategy is a small/mid-cap fund with a higher average market cap. Because of a smaller asset base, the portfolio has been leaner than this fund, recently owning 200 stocks to this fund’s 311 . There will be more to keep an eye on here, though Alonso owned 113 holdings in common with this fund as of December 2015 . T. Rowe has a strong history in small-cap investing, and Alonso has good analytical resources at his disposal. However, his tenure on the small-cap team only dates to 2013 , and he will be running significantly more assets here ( $10 billion) than currently ( $800 million). That may take some getting used to. K