(PUB) Morningstar FundInvestor

14

Fund News

Fund Manager Changes

Appleseed APPLX Date: 06-30-14 Ronald Strauss and Rick Singer retired at the end of June. | Our Take: We are maintaining our Morningstar Analyst Rating of Bronze because three comanagers remain who have been leading the way. Bill Pekin, Adam Strauss, and Josh Strauss are managers we’ve spoken to over recent years, and we feel comfortable with them in the lead. Date: 06-26-14 Lead manager Christopher Hartman has left. Eli Pars was added to the management team in his place. | Our Take: We have lowered this fund’s rating to Neutral from Bronze. Date: 07-01-14 Gordon Scott replaced manager Heather Carrillo. Carrillo had run the fund pretty tightly with the S&P 500 Index and hadn’t impressed in performance. | Our Take: We had rated the fund Neutral last year because of Carrillo’s unimpressive track record. Since March 2011, Scott has been one of a team of comanagers on Fidelity Advisor Stock Selector Mid Cap FMCAX. Because of the multimanager format, there’s not much to go by for Scott. Date: 06-03-14 Steven Geist is retiring from FPA. Comanagers Eric Ende and Greg Herr are dividing his duties. | Our Take: Herr was named comanager in August 2013, so he’s quite new, but Ende has been on board since 1999. That reassures us that the fund is still in good hands. We have lowered our rating to Silver from Gold to reflect both the loss of Geist and our confidence in Ende and Herr. Date: 08-21-14 James Gendelman has left Marsico Capital, leading Litman Gregory to remove Marsico as a subadvisor and distribute its portion of the fund among the other five managers: Thornburg, Harris, Northern Cross, Lazard, and Wellington. | Our Take: We’ve had concerns about Marsico for some time, so we welcome the change. Date: 10-31-15 Brian Rogers will step down in October 2015 and be replaced by John Linehan, who ran T. Rowe Price Value TRVLX from 2003 to 2009. From 2009 to the present, he’s served as head of T. Rowe’s U.S. equity team. | Our Take: Linehan has a decent record, but it’s not the equal of Rogers, so we have lowered the fund’s rating to Bronze from Gold. Date: 06-30-14 Amit Wadhwaney left. Matthew Fine, who has comanaged the fund since 2012 and had been an analyst on the fund since 2003, took over as the lead manager. Wadhwaney’s exit comes in the wake of other departures from the international team. In April 2013, Jakub Rehor, who had been a long-tenured analyst and named to the fund’s portfolio-management team in January 2013, left the firm. | Our Take: Wadhwaney and the analysts’ departures are a big blow, and we’ve downgraded the fund to Neutral. Date: 06-10-14 Robert Rewey III has replaced Ian Lapey. Rewey comes to Third Avenue from Cramer Rosenthal McGlynn. He was one of several comanagers, so he doesn’t have much of a track record. | Our Take: We have lowered the fund’s rating to Neutral from Bronze because of Rewey’s record and because there seems to be a steady exodus from the firm. Impact: Negative Calamos Market Neutral Income CVSIX Impact: Negative Fidelity Export & Multinational FEXPX Impact: Neutral FPA Perennial FPPFX Impact: Negative Litman Gregory Masters International MSILX Impact: Positive T. Rowe Price Equity Income PRFDX Impact: Negative Third Avenue International Value TAVIX Impact: Negative Third Avenue Value TAVFX Impact: Negative

Alternatives Investors Ignore Fees Morningstar and other researchers have consistently found that expense ratios are one of the few data points predictive of future mutual fund performance, and investors have increasingly gotten that message, with greater asset flows going to the cheapest funds. Yet, when it comes to investing in alternative mutual funds, it seems that investors forgot to read the memo. Over the past three years, alternatives were the lone broad Morningstar Category where investors seemed to favor higher-cost funds over lower-cost funds. From 2011 to 2013 , only 36% of the net $58 billion that has flowed into alternative mutual funds has gone to funds in the cheapest quintile. Across all mutual fund categories, 121% of the net $432 billion of inflows has gone to funds in the cheapest quintile over the same time period. The figure is greater than 100% because as money was coming into cheap funds, it was leaving more-expensive funds. Part of the reason for the meager flows into cheap funds is that investors appear to be performance- chasing, paying less attention to fees. The perform- ance-chasing may be exacerbated by the lack of alternative funds with significant track records. The recent stampede into Bronze-rated MainStay Marketfield MFLDX , which has swallowed up one fourth of the $58 billion of net inflows since 2011 , is a good example of money going after good returns. The $18 billion fund isn’t cutting investors any bargains. It has an expense ratio of 1 . 52% for its Insti- tutional share class, which falls right in the middle of similarly distributed alternative funds, despite its being the group’s largest. The flows have had a big impact on the average fees investors pay in the cate- gory. The asset-weighted expense ratio of the long- short equity category jumped to 1 . 38% in 2013 from 1 . 24% in 2012 . The asset-weighted expense ratio in every other alternative category either fell or stayed