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 25, 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
Morningstar Investment Conference Recap and More

Wow, we covered a lot of ground at our annual conference this week. You can find a slew of reports and video interviews all gathered together here.

In particular, I would call your attention to our interviews with Bill McNabb, Charles de Vaulx, Vincent Montemaggiore, and Dan O’Keefe.

Update on Closed-End Muni Funds
On a different topic, Cara Esser and Jason Kephart took a deep look at closed-end muni funds.

Richard Thaler Talks about Nudges
A fun interview with the Spectator and Nudge guru Richard Thaler.

New Rating on Artisan Global Equity
Finally, we’ve brought Artisan Global Equity ARTHX under coverage.  Here is Greg Carlson’s report.

Artisan Global Equity’s returns have cooled since a comanager departed, but a deep, proven team and a distinctive approach merit a Morningstar Analyst Rating of Bronze.

This fund, in the world-stock Morningstar Category, has seen significant changes during its six years of operation. Barry Dargan served as the lead manager from its March 2010 inception until he left Artisan in January 2013. Dargan, who had previously amassed a solid record running MFS Global Growth MWOFX, had joined a team led by Mark Yockey (lead manager of Silver-rated Artisan International ARTIX and Gold-rated Artisan International Small Cap ARTJX) in late 2009 to work only on this fund. Yockey served as comanager and Dargan was backed by Yockey’s sizable analyst team.

The fund trounced its MSCI ACWI benchmark, as well as the MSCI ACWI Growth Index (to which its returns have been more correlated), during Dargan’s short tenure. Meanwhile, from his January 2013 departure through May 2016, the fund still beat the ACWI Index, but it trailed the ACWI Growth, and its risk-adjusted returns over the latter period are merely average. The fund’s less-impressive returns during the latter period owe in part to an increased stake in emerging markets after Dargan left. While some picks, such as environmental cleanup firm Beijing Enterprises Water Group, aided the fund’s cause and were longer-term winners for Yockey’s other charges, other holdings such as China Oil and Gas and Labix Snacks of China dented returns.

It’s important to keep the fund’s recent slump in perspective. It's occurred over a fairly short period, and is consistent with short-term woes at the team's other funds, which boast excellent long-term returns. In addition, this fund’s record since inception is still quite strong, and the team deserves significant credit for that. Finally, the team’s flexible approach to growth, which includes a mix of fast growers, steadier firms, and turnaround plays, has resulted in distinctive portfolios and holds a great deal of fundamental appeal. Although this small fund’s above-average costs are a concern, it’s a worthy holding.

Process Pillar: Positive | Greg Carlson 06/10/2016 Lead manager Mark Yockey is a growth investor at heart. However, he spreads the fund's assets among faster-growing, somewhat pricey companies; higher-quality stable growers; and value plays, although the weightings of those three groups have shifted over time. Yockey invests loosely along themes, and the fund has somewhat of an independent streak; regional and sector weightings often stray significantly from the world-stock category norm, and emerging-markets exposure has swung from zero to 24% of assets since its 2010 inception. Thus, returns have been less correlated to the fund's MSCI ACWI benchmark than those of the typical world-stock fund. This distinctive approach earns a Positive Process rating.

The fund typically holds 40-60 stocks; the number depends in part on how many compelling stocks Yockey finds. The team has quite a bit of flexibility here, as it manages just $900 million total in this strategy. Yockey trades around positions at times but will hold on to solid picks for years. Portfolio turnover should typically run from 50% to 85%, but it spiked to more than 100% in a couple of the early years when the fund was tiny.

The team has applied this distinctive approach quite successfully to non-U.S. stocks for many years at Artisan International and Artisan International Small Cap. It earns a Positive rating for Process.

As with Yockey and team's other charges, this one sports a portfolio that stands out from the pack. As of March 2016, the fund stashed 62% of assets in U.S. stocks--well above the 50% world-stock category norm. That weighting has varied significantly: In the first few years after the fund's 2010 inception, its U.S. stake rarely exceeded 40%. But the team has lately found more opportunities in the U.S. Of the fund's eight largest purchases since June 2015 (when its U.S. weighting was 54%), seven were U.S. firms, including Molson Coors TAP, Dollar General DG, Amazon AMZN, and Pepsi PEP.

The fund's sector weightings may also look familiar to investors in the team's other funds. As the above list of purchases suggests, consumer defensive firms have become a recent emphasis (22% of assets, double the world-stock category norm and the weighting of the MSCI ACWI benchmark). Meanwhile, healthcare remains a significant overweighting, with a focus on testing firms and device makers that the team believes are less susceptible to pricing pressure such as Medtronic MDT, Thermo Fisher Scientific TMO, and Boston Scientific BSX. And the team continues to be enthused about telecom, particularly cable providers Comcast CMCSA and Liberty Global. Finally, as with the team's other funds, this one has lately become more concentrated, with just 49 holdings in March compared to a more-typical 60-65.

Performance Pillar: Positive | Greg Carlson 06/10/2016

This fund's performance since its January 2010 inception has been quite strong. Through May 2016, it surpassed 95% of its world-stock category peers as well as its MSCI ACWI benchmark and the MSCI ACWI Growth Index (to which the returns of this growth-oriented fund have been a bit more correlated). While the fund has been more volatile than its typical peer, it's still beaten more than 88% of peers on a risk-adjusted basis (as measured by Sortino and Sharpe ratios). As is the case with lead manager Mark Yockey's other funds, this one has delivered above-average upside while performing roughly in line with benchmarks in declining markets.

The fund's record since the January 2013 departure of lead manager Barry Dargan--who joined the team from MFS in late 2009 and worked only on this fund--isn't as impressive. From then through May 2016, the fund beat 68% of peers and the MSCI ACWI Index while edging out the ACWI Growth, and its risk-adjusted returns are weaker--its Sortino ratio lands in the category's middle, and the Sharpe ratio beats about 40% of peers (on both measures, the fund lands between the two indexes). But the fund's showing over this period is in line with that of the team's other charges, all of which have slumped recently. And it's important to note that the team contributed to this fund's strong early returns. Thus, it earns a Positive Performance rating.

People Pillar: Positive | Greg Carlson 06/10/2016

Although this team lost a veteran in early 2013, it remains quite proven. 

Barry Dargan, a former MFS manager, served as the lead manager on this fund from its inception through January 2013 before leaving the firm. He had joined in late 2009 and worked only on this fund. Mark Yockey, initially a comanager, essentially became the lead when Dargan left. Yockey has managed Artisan International, Artisan International Small Cap, and Artisan Global Small Cap ARTWX since their respective 1995, 2001, and 2013 inceptions. Before Artisan, he managed Waddell & Reed Global Growth UNCGX for six years. All his charges boast fine long-term results.

When Dargan left, Andrew Euretig and Charles-Henri Hamker were named comanagers. Euretig became an associate manager on International in 2012 and a comanager of that fund in 2013. He joined the team in 2005 and covers industrials. Hamker was named an associate manager of International and Artisan International Small Cap in 2012. In 2013, he became a comanager of the latter fund, and a comanager of Artisan Global Small Cap when it launched in July 2013. He joined the team in 2000.

The trio is supported by 13 analysts and eight research associates. On average, the senior analysts have worked on the team for six years. Yockey's long resume and the depth of his supporting cast earn a Positive rating for People.

Parent Pillar: Positive | Greg Carlson 02/05/2016

Artisan hires proven or promising managers and allows them to build and run their teams with a large degree of autonomy. Four of the teams employ investment strategies that are well-executed and have performed strongly over longer-term periods. The firm's emerging-markets team has generated mediocre results in its 8.5-year tenure, and two teams have launched since only early 2014. The firm tends to close funds to preserve their flexibility and increase the chances that they will continue to outperform. Indeed, seven of the firm's 15 funds are currently closed to new investors. The firm also has a clean regulatory history.

Artisan's board generally does a fine job, but it could push the advisor to pass on economies of scale through a more aggressive negotiation of fees or management-fee breakpoints. The firm's funds aren't often priced well for their size.

On a positive note, all but two of Artisan's funds have at least one manager with more than $1 million invested in fund shares, and seven have at least two managers who invest heavily in their funds. That's the highest level of manager investment disclosed to the SEC and an industry best-practice.

The firm went public in March 2013. While this could pressure management into keeping popular funds open to boost revenue, it has thus far continued to close them. Also, its executives retain tight control of the firm.


Price Pillar: Negative | Greg Carlson 06/10/2016

This small fund is pricey. The 1.37% expense ratio of the Investor shares, which hold 60% of the assets, is 23 basis points above the no-load world-stock category fund norm and earns a Morningstar Fee Level of Above Average. The Institutional shares launched in October 2015 hold the other 40% of the assets; they don't have an annual report expense ratio yet, but the 1.15% prospectus price tag lands squarely in above-average territory. While these ratings aren't too surprising given the fund's modest $276 million asset base, the fund earns a Negative Price rating.


 


 

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