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.

 
 
Feb 25, 2017
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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
Surprise Manager Changes Keep Investors on Their Toes

Sometimes manager changes come out of nowhere. Recently, two fund managers under 50 retired. Who saw that coming? Chuck Myers of Fidelity Small Cap Discovery FSCRX is retiring at year-end, and Dave Hollond of American Century Heritage TWHIX is retiring. We lowered the former to a Morningstar Analyst Rating of Bronze and the latter to Neutral (a new Analyst Report will be posted soon).

Why would they retire? Because they can. Successful managers running large sums of money generally pull down eight-figure salaries. If they have significant firm ownership, their net worth can grow exponentially, as evidenced by the billionaires who run money. Back in 1999, Fidelity Fund's FFIDX Beth Terrana retired at an early age. Janus Fund's JANSX Jim Craig noticed and said "Hey, I could retire, couldn't I?" and so he retired, as did a couple of other managers at a fairly young age.

I don't know if the managers in 1999 saw that the market was overvalued and the managers today are seeing something similar. They certainly haven't said anything like that, and I don't want to read too much into a small number of retirements. But my point here is to discuss what investors can do to be ready for even surprise manager changes.

More common than early retirement is when managers leave for another firm. In that reality, the most important thing to do is monitor your funds on a regular basis. Check them quarterly or monthly, whatever works for you. But the things to check for are manager or category changes rather than performance. These are the things that signal an important change. You can track our analyses to see our assessments of the changes, too.

What else can you do? Here are a few more ways to be prepared.

1) Write down an action plan for each fund, spelling out how much importance you place on the manager. If you have a sole manager at a focused fund, you probably want to sell when a new manager comes on board, but if it is a team approach, you might do nothing. Having logged this information, as well as the role the fund plays in your portfolio, will save you time and anguish.

2) Keep a watchlist of funds you like but don't own so that you'll have some ideas at the ready when change comes.

3) Review our highest-rated funds in a category to expand your list of ideas.

4) Model your top two choices to see how they would change your portfolio if you used them as replacements. 

5) Model what would happen if you sold the fund in question and simply rolled that money into funds already in your portfolio. It could be an opportunity to simplify.

6) Consider your cost basis and the price of selling the fund if you hold it in a taxable account.

If this sounds like too much work, there are some fund types that are much less likely to have a manager change that seriously degrades the appeal of the fund. It's very rare that a manager change at an index fund really changes its prospects, so these are lower-maintenance investments. Occasionally, exchange-traded funds will change their stripes and follow a new index, but that's not likely to happen if you have a big core fund.

You can also look for outstanding team-managed funds. Dodge & Cox, American, and Fidelity investment-grade bond funds are examples of some of the best, most-stable groups around.

Finally, funds that have multiple subadvisors and are run by a firm you trust can be pretty dependable, though not quite as much as the two above examples. For example, Vanguard has some funds that feature multiple subadvisors. If a key manager retires, it's often easier for Vanguard to change subadvisors than it would be for a single-manager fund to find an equal replacement.

 

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