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 mutual fund 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.

 
 
Aug 03, 2015
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About Russel Russ' Photo
Russel Kinnel,
Director of Fund Research and Editor, Morningstar FundInvestor
Russel Kinnel is director of mutual fund research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors.
Featured Posts
What to Make of the Chinese Roller Coaster

China's A-share market sold off 8.5% today. The roller coaster continues as China tries a little of everything to keep its market afloat. Last week, I chatted with Andy Rothman of Matthews Funds about all the intervention we're seeing and what it means for U.S. investors.

Why Should Current Fundholders Pay to Get New Fundholders?
This is the question that John Rekenthaler poses in his column.

Longleaf Partners International Downgraded
We've lowered Longleaf Partners International's LLINX Morningstar Analyst Rating to Neutral. Here's Gregg Wolper's take:

Weak performance in 2014 and early 2015 is not the only reason that Longleaf Partners International's Morningstar Analyst Rating has been reduced to Neutral from Bronze.

This fund has had its share of success since its 1998 inception. It held up very well during the early-2000s bear market, when investors dumping pricey technology stocks flocked to the cheap shares in its value-leaning portfolio. It also held its loss below that of peers during the 2007-09 crisis and outperformed in some rallies. However, since 2009, it has performed poorly in falling markets, and the depth of the losses is alarming. The fund plunged 20.3% in 2011, more than 6 percentage points worse than the foreign large-blend average and the MSCI ACWI ex USA Index. It lost 14.8% in 2014 and another 0.5% in 2015's first quarter, both much worse than the category and index. While the fund's 15-year ranking remains high, its five- and 10-year returns through June 30, 2015, lag roughly 90% of its group.

If those low rankings resulted merely from the fund lagging during speculative rallies or were due to cyclical downturns, they would be more understandable given the managers' price-conscious strategy. But these deep losses owed partly to serious stock-picking errors among some large, high-conviction holdings. HRT, a Brazilian energy firm, proved a disastrous choice because of poor drilling results and what this fund's managers considered unwise decisions. Then Manabi, a private mining-related firm also in Brazil, lost 60% of its value in 2014 and another 46% in 2015's first quarter. Both HRT and Manabi once had been among
the highest-weighted stocks in the portfolio. Previously, the managers were
caught off guard by management actions at other holdings, including but not
limited to Allied Irish Banks, Olympus, and Dell. The number of such cases, and
the size of their weightings, raises concerns given that strong and reliable
management is a key component of this fund's stock-evaluation process.

This fund's bold approach and experienced managers could lead it to outperform over time. But the notable missteps in recent years reduce confidence in that prospect.

Vanguard Global Minimum Volatility Rated Bronze
We've initiated coverage of Vanguard Global Minimum Volatility Fund VMVFX with a Bronze rating. Here's Alex Bryan's take:

Vanguard Global Minimum Volatility is a compelling fund for risk-averse investors. Its low fee and well-constructed defensive portfolio earn it a Morningstar Analyst
Rating of Bronze.

This fund attempts to offer investors a smoother ride than the FTSE Global All Cap
Index, which includes both U.S. and foreign stocks. To do this, the managers
select stocks from this index with an optimization algorithm. This algorithm
takes into account each security's historical volatility, factor exposures, and
the correlations between stocks. But it is subject to several constraints. These constraints limit sector and country tilts relative to the FTSE Global All Cap Index and keep individual positions small. In order to further mitigate risk, the fund hedges its currency exposure. From January 2014 through June 2015, the fund has exhibited about two thirds the volatility of its parent index.

This is a rules-driven approach that does not rely on qualitative security
selection. But because the fund does not track an index, the managers have some
discretion over implementation, which may help reduce costs. For instance, they
can spread turnover throughout the year rather than concentrating trades on an
index rebalancing date. They can also adjust the model as needed to balance the
cost and benefits of trading. Turnover can be high, which can reduce tax
efficiency. The fund is competitive with its indexed peers on fees.

Like other low-volatility strategies, this fund will likely lag during strong bull
markets. Investors should not expect it to generate market-beating returns over
the long run. But there is a good chance that it might offer a more-favorable
trade-off between risk and reward than most global-stock funds. Low-volatility
stocks may offer lower expected returns than the market, which can make them
unattractive to benchmark-sensitive investors. This can depress their prices
relative to their risk and set up strong risk-adjusted returns. These stocks
also tend to be more profitable than average and enjoy relatively stable cash
flows. The fund's defensive posture should help it weather market downturns
better than its peers.





 

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