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A Fundamental Index Fund Joins the 500 Changes to the 500 | Russel Kinnel

ings include tech names like NetApp NTAP and LinkedIn LNKD alongside railways like Kansas City Southern KSU and Canadian Pacific CP . We are also adding Vanguard FTSE All-World Ex-US Small Cap Index VFSVX . It’s the cheapest foreign small-cap index fund with a fee of just 0 . 45% . The fund has about 16% of assets in emerg- ing markets. Three Go Out To make room, we are cutting Harbor International Growth HIIGX . As noted in Fund Manager Changes on Page 14 , Harbor has fired Marsico manager Jim Gendelman and replaced him with managers from Baillie Gifford. It’s an understandable change given Marsico’s struggles, but Baillie Gifford hasn’t been a standout either. We are also dropping two other momentum funds. Brandywine Blue BLUEX has been on an extended losing streak as its take on momentum just hasn’t worked. We rate it Neutral and bid it adieu. The fund’s returns land in the bottom decile of its peer group for the trailing one-, three-, five-, and 10 -year periods. We are dropping Chase Growth CHASX , which has lagged its peers over most trailing periods and has been dropped from coverage. Send Us Your Requests Is there a fund you’d like to see in the Morningstar 500 ? We’re all ears. Just send an email to russel. kinnel@morningstar.com. œ

We are adding one Silver-rated fund and two Bronze- rated funds and dropping three disappointing funds to make room. First, we’re adding a value index fund. Schwab Fundamental US Large Company Index SFLNX employs a fundamental indexing strategy rather than the typical market-cap-weighted strategy. The weighting of each stock is based upon cash flow, sales, and dividends. As a result, the fund has a value bias and a lower market cap than an index such as the S&P 500 or Russell 1000 . While some proponents have gotten a little carried away with claims of their superiority to cap-weighted benchmarks, fundamental indexes still ought to make fine investments. This one charges 0 . 32% —a decent fee, though you can find value and core indexes for cheaper. However, it has a nice low minimum invest- ment of just $ 100 . We’re also adding Bronze-rated American Century Heritage TWHIX . Led by David Hollond and Greg Walsh, the fund has executed a straightforward growth strategy well. From the start of Hollond’s tenure in 2007 , the fund has returned an annualized 7 . 9% versus 4 . 4% for the average mid-growth fund. The fund generally has done best when market trends continue on an extended run. That’s a sure sign that this fund still has a momentum compo- nent to its strategy. The managers look for companies with accelerating earnings and revenue, and they’re willing to pay high valuations for them. However, the fund doesn’t set minimum levels of growth. As a result, the portfolio sometimes holds names with growth rates that are relatively low but that have been rising. The top hold- See the facing page for more.

What is Morningstar FundInvestor 500 ? The Morningstar FundInvestor 500 features the industry’s best and most notable funds. Use the list to get new investment ideas and track the funds you already own. FundInvestor subscribers have access to one-page monthly reports on all 500 funds on mfi.morningstar.com. Just type in the name or ticker of the fund in the search box.

Summary of Changes

Add

Drop

American Century Heritage

Brandywine Blue

Schwab Fundamental US Lg Co Idx

Chase Growth

Vanguard FTSE All-Wld ex-US SmCp Idx Inv

Harbor Intl Growth