Investment Strategy
We seek to pick winning funds with superior management and quantitative characteristics linked to strong performance. Our quantitative research uses the most comprehensive mutual fund database in the world to determine the best strategies for long-term investing success. We then supplement those studies with extensive qualitative research of portfolio managers, analysts, and traders through onsite visits and follow-up phone calls.
 
About the Editor
Russel Kinnel is director of manager research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors. He also writes the Fund Spy column for Morningstar.com, the company's investment Web site.

Since joining the company in 1994, Kinnel has covered the Fidelity, Janus, T. Rowe Price, and Vanguard mutual fund families. He helped develop the new Morningstar Rating for funds and the new Morningstar Style Box methodology. He also is co-author of the company's first book, The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success, which was published in January 2003.

 
 
Jun 28, 2016
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About Russel Russ' Photo
Russel Kinnel,
Director of Manager Research and Editor, Morningstar FundInvestor
Russel Kinnel is director of manager research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors.
Featured Posts
Brexit Crushes Markets

A tip of the hat to The Economist for the best headline (“Anarchy in the UK”) on the disaster that is Brexit. About 52% of British voters chose anarchy over union, and we’ll be sorting through this mess for months and probably years.

On Friday, the typical U.S. large-blend fund lost a little under 4%, while the typical foreign large-blend fund lost nearly 7%. Foreign funds are getting hit with the double whammy of falling currency (both the pound and the euro) and falling stock prices. Countries most dependent on the European Union got hit harder than the United Kingdom. For example, Spain lost about 14% on Friday.

Meanwhile, safe-haven bonds such as Treasuries rallied strongly. First, investors wanted safety. Second, the vote is a wet blanket on economic growth, and that means long bonds are rallying with little to fear from inflation. The talk on the Fed has already shifted to whether its next move will be to cut interest rates rather than raise them.

As I write this midday on Monday, selling has resumed, with the United States and Europe down about 3% more.

Winners and Losers on Friday
Here’s a breakdown of the best- and worst-performing categories on Friday.

Name

Total Ret 1 Day %

 Bear Market

5.98

 Commodities Precious Metals

5.16

 Equity Precious Metals

4.55

 Long Government

2.16

 Managed Futures

2.03

 Long-Term Bond

1.04

 Muni California Long

0.71

 Muni Ohio

0.66

 Muni New Jersey

0.66

 Muni National Long

0.65

 Equity Energy

-4.62

 Technology

-4.65

 Financial

-4.78

 World Stock

-5.03

 Foreign Small/Mid Growth

-6.07

 Foreign Small/Mid Blend

-6.23

 Foreign Large Growth

-6.46

 Foreign Large Blend

-6.84

 Foreign Large Value

-7.22

 Europe Stock

-7.41

 

It’s noteworthy that energy, tech, and financials really took it on the chin. Real estate and utilities lost the least.

Fund Winners and Losers
Here are the best- and worst-performing Morningstar 500 funds from Friday. For all the hype that alternatives get, plain old high-quality bonds were the place to be. Even lower-quality munis did pretty well, perhaps because of their interest-rate exposure. And, of course, gold is often a good place to be when the markets are in chaos.

Among those hit hardest are funds with high exposure to the U.K. and Europe, little cash or hedging, and a fair amount of financials. Oakmark International OAKIX lost nearly 10% because of a big 31% financials weighting and a 67% Europe weighting. In particular, the fund had Credit Suisse and BNP Paribas as its second- and third-largest holdings.

Name

Total Ret 1 Day % 

Total Ret % Rank Cat 1 Day

Vanguard Long-Term Treasury

2.43

21

Vanguard Precious Metals and Mining

2.12

100

Vanguard Long-Term Investment-Grade

0.88

3

Vanguard Interm-Term Treasury

0.88

6

Vanguard Interm-Term Bond Index

0.87

1

Fidelity® Municipal Income

0.81

9

Vanguard Long-Term Tax-Exempt

0.77

18

Fidelity Tax-Free Bond

0.76

18

Franklin High Yield Tax-Free Inc

0.75

8

Vanguard High-Yield Tax-Exempt

0.71

18

Harbor International

-8.48

89

Oakmark International Small Cap

-8.51

100

American Century International Gr

-8.53

98

Fidelity Overseas

-8.57

90

Litman Gregory Masters Intl

-8.92

95

Causeway International Value

-9.18

98

Dodge & Cox International Stock

-9.30

98

American Beacon Intl Equity

-9.64

94

Oakmark International

-9.73

99

Vanguard European Stock Index

-10.56

93

 

Relative Winners and Losers
Below are some of the biggest winners and losers in relative performance terms. Conservative approaches that favored cash, gold, or dividends helped a number of funds. Vanguard’s Global Minimum Volatility strategy worked nicely.

 

Name

Ticker

Total Ret 1 Day % 

Total Ret % Rank Cat 1 Day

Vanguard Interm-Term Bond Index

VBILX

0.87

1

Vanguard Total Intl Bd Idx

VTABX

0.59

1

Permanent Portfolio Permanent

PRPFX

-0.13

1

PIMCO Inflation Response MultiAsst

PIRMX

-0.35

1

Matthews Emerging Asia

MEASX

-1.38

1

Vanguard Managed Payout

VPGDX

-2.64

1

IVA International

IVIOX

-2.15

2

Vanguard Long-Term Investment-Grade

VWESX

0.88

3

T. Rowe Price Tax-Free Shrt-Interm

PRFSX

0.54

3

Fairholme

FAIRX

-1.73

3

Vanguard Global Minimum Volatility

VMVFX

-2.52

3

Meridian Small Cap Growth

MISGX

-2.68

3

Hennessy Focus

HFCSX

-2.77

3

Bridgeway Ultra-Small Company Market

BRSIX

-2.78

3

First Eagle Overseas

SGOVX

-3.17

3

T. Rowe Price Science & Tech

PRSCX

-3.90

3

Loomis Sayles Investment Grade Bond

LIGRX

-1.05

99

Fidelity Capital & Income

FAGIX

-1.92

99

Royce Premier Invmt

RYPRX

-4.86

99

Lateef

LIMAX

-5.02

99

T. Rowe Price Spectrum Growth

PRSGX

-5.24

99

Dreyfus Opportunistic Small Cap

DSCVX

-5.32

99

AMG Managers Skyline Special Equities

SKSEX

-5.41

99

Oakmark Global Select

OAKWX

-7.20

99

Oakmark Global

OAKGX

-7.58

99

Oakmark International

OAKIX

-9.73

99

Vanguard Precious Metals and Mining

VGPMX

2.12

100

Oakmark International Small Cap

OAKEX

-8.51

100

 

A Few Thoughts
Down markets can create buying opportunities. Eventually the 2008-09 bear market made stocks so cheap that they were a great buy. But we didn’t get there in a day. Given the possible harm to the global economy, I don’t know that the markets have overreacted. So, I’m not doing anything to my portfolio other than trying not to dwell on how much it’s down. So, I will once again evoke the words of Jack Bogle: “Don’t just do something, sit there!”

We have a very long road ahead of us. It’s not clear when, how, or even if Brexit will occur. In addition, Scotland, Northern Ireland, and Wales are talking about leaving the U.K. to stay in the EU. And we don’t know who will be leading the U.K. effort to leave the EU.

So, yes, there is uncertainty and bad things are happening. But making a quick emotional trade is almost always the worst course of action. Sticking to your plan is almost always the best one.

Here are a few helpful articles on the subject.

The Economist
Anarchy in the UK: Britain is sailing into a storm with no one at the wheel

 

Emad Mostaque
Why Brexit (Probably) Won’t Happen

The Guardian
Uncertainty Is Here and Poisoning Our Economy

PIMCO
Initial Impact and the Road Ahead

The New York Times
Having Won, Some ‘Brexit’ Campaigners Begin Backpedaling

The Guardian
The English Have Placed a Bomb Under the Irish Peace Process

 

 

 

 

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