(PUB) Morningstar FundInvestor

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Categories With No Gold-Rated Funds Tracking Morningstar Analyst Ratings | Russel Kinnel

Silver-rated RS Global Natural Resources RSNRX is our top-rated natural-resources fund. It’s the fund’s strategy that really sticks out. Instead of trying to predict commodity prices, management looks for low- cost producers in industries with steep supply cost curves. The result is a portfolio less exposed to big swings in commodity prices. However, the fund does come with a front load. Natural-resources funds typically include energy, mining, and other commodities, so we can seek out alternatives in those areas. This time we’re getting more narrow instead of more broad. One possible sub- stitute is Vanguard Precious Metals and Mining VGPMX , which is a cheap no-load fund with one foot in precious metals and one foot in natural resources. However, it doesn’t have energy in its mandate. If that’s what you want, then Vanguard Energy VGENX , run by Wellington’s Karl Bandtel, is worth a look. The fund takes a straightforward approach to finding attractive giants in the energy world. With names like Exxon Mobil XOM , Chevron CVX , and Shell RDS .A at the top of the portfolio, you know what you’re getting, and over time this fund has done well. Vanguard Long-Term Treasury VUSTX is a Silver- rated fund that does a fine job with its mission. But with rates at record lows, this fund is pretty vulner- able to an interest-rate spike. Better to be more diversified by bond type and duration. I’d rather own Gold-rated Vanguard Total Bond Market VBTLX . The fund owns Treasuries of all maturities as well as mortgages and a slug of high-quality corporates. Not only that, but it charges an expense ratio that’s half the levy charged by Vanguard Long-Term Treasury. With yields this low, even 10 basis points is welcome. œ

For a fund to earn a Morningstar Analyst Rating of Gold, it must be a true standout with competitive advantages. Not every category has one—in some categories the top-rated fund is Bronze or Silver. In such a case, you could either take the best of the group or look for another way to gain exposure to the category. For example, the top Japan fund is only rated Bronze, but you could instead consider a broad foreign fund or a diversified Pacific fund as a way to get Japanese exposure. Let’s look at the top-rated funds in catego- ries devoid of Gold-rated funds. Matthews Japan Investor MJFOX is rated Bronze as it has good management and a sound approach. However, expenses are only average and Matthews has done better in other parts of Asia. Another option would be to choose Gold-rated funds such as Oakmark Global OAKGX , which has 22% of assets in Japan, or Vanguard Developed Markets Index VDMIX , which has 21% of assets in Japan. AllianzGI Technology Institutional DRGTX is rated Silver. It’s a fine pure play on tech. However, that applies to the Institutional shares. The Retail shares charge a rather high 1 . 58% expense ratio, so you might want something cheaper. Moreover, tech is in the wheelhouse of many a growth manager. For small-cap tech, Brown Capital Management Small Company BCSIX uses an outstanding, patient approach. For mid- or large-cap tech, Primecap’s funds have a more modest 25% – 35% in tech. Primecap Odyssey Aggressive Growth POAGX is a brilliant mid-cap play, and Vanguard Capital Opportunity VHCOX is a much cheaper way to get tech exposure along with health care.

What Are Morningstar Analyst Ratings?

Our ratings are chosen for long- term success. Analysts assess a fund’s competitive advantages by analyzing people, process, parent, performance, and price. They do rigorous analysis and then submit their ratings to a committee that vets their work for thoroughness and consistency.