(PUB) Morningstar FundInvestor

December 2013 Vol. 22 No. 4

FundInvestor Research and recommendatio s for the s riou fund investo

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Consistent Strategies, Bumpy Returns

deeper to understand the challenges faced, the plans for succession, and the strength of the roster behind the founder. I visited Montag & Caldwell in August, Longleaf Part- ners (aka Southeastern Asset Management) in October, and Royce in November. None of the three firms’ leaders have any plans to retire, but they are either at or past the typical retirement age, so succession is important. One common theme I took away was the impor- tance of the right ownership structure in ensuring the passing of the torch will work well. Sales of fund companies can go very wrong. When SocGen tried to sell TCW , it became a debacle, as a power struggle with Jeffrey Gundlach cost the firm its top manager. More commonly, a fund firm will sell itself to another only to see that one merge and merge again. For example, Wanger (Acorn) sold itself to Liberty, which then sold itself to Columbia, which then sold itself to RiverSource, which adopted the Columbia name. Along the way, some sales folks well outside of Wanger’s control allowed some market-timing at Acorn funds. Long story short, ownership is a big deal. Maybe the Best Ownership Structure What do the best fund companies have in common? Many are employee-owned with a provision that departing employees must sell their shares back at a set multiple. This ensures that those owning the most shares can’t sell to a third party in order to max- imize their returns. That promotes stability while giving the next generation of investors at the firm healthy incentives to stick around and act in the firm’s long-term interests. Continued on Page 2

RusselKinnel, Director of FundResearch and Editor

Fund Reports

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We visit scores of fund companies each year. We talk with managers, traders, analysts, executives, compliance officers, and more in order to understand the culture and the talent pool. We’re interested in the rest of the fund company because a fund is much more than a single manager. Executives who might not be fund managers might play a key role. Compliance officers, analysts, traders, and even marketing and sales people are important to understanding how a fund company works. Typically, we’ll spend a full day at a fund company as there’s lots of ground to cover. Our fund company research is led by Bridget Hughes, who heads the parent rating committee responsible for the Parent score featured in every fund’s Morningstar Analyst Rating. Bridget and the analysts covering a fund company generally get out to visit all of the top 20 fund companies each year. (In Research on Page 8 , Katie Reichart shares some key take-aways from recent visits to Fidelity and T. Rowe Price.) As head of the Analyst Ratings committee, I’m inter- ested in those giants, but I’m also interested in some of the smaller firms where we have some highly rated funds. In recent months I paid a visit to three firms where the leader was near retirement age and perfor- mance had suffered some hiccups. I wanted to dig

Meridian Growth PIMCO Global Multi-Asset PIMCO Total Return Morningstar Research Updates on Fidelity and T. Rowe Price

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The Contrarian

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Cash Is Your Friend

Red Flags

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We Downgraded These Funds

Market Overview

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Leaders & Laggards

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Manager Changes and News

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Portfolio Matters

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IRA Mysteries Revealed

Tracking Morningstar

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Analyst Ratings

Income Strategist

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FundInvestor 500

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FundInvestor 500 Spotlight

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Follow Russ on Twitter @RussKinnel