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.

 
 
Jan 19, 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
Fund Manager of the Year Nominees

It’s awards season at Morningstar, and we’ve announced the nominees for Domestic- and International-Stock Fund Managers of the Year. Here’s the article on international nominees, and here it is for domestic nominees. We will announce all the winners Jan. 25.

Royce Special Equity Rated Silver
We still have a high opinion of Charlie Dreifus, but some day he will retire and that day is drawing closer. Thus, our downgrade to a Morningstar Analyst Rating of Silver. Here is Andrew Daniels’ take:

Royce Special Equity's experienced lead manager and distinct, risk-conscious approach make it a great option for conservative investors seeking small-cap exposure. There is an element of key-manager risk here, however. While lead manager Charles Dreifus, who is over 70 years old, intends to run this fund for years to come, he's in the later stage of his career. As such, the fund's Morningstar Analyst Rating has been downgraded to Silver from Gold.

Despite the downgrade, the fund is still a solid option. Dreifus and Steven McBoyle, who has been assistant manager since 2014, target stocks with high returns on capital, strong balance sheets, attractive valuations, and conservative accounting practices. The managers' preference for profitable, conservatively managed firms is evident in the fund's higher return on invested capital and lower debt/capital ratio relative to the Russell 2000 Value Index. They use EBIT/enterprise value as the primary valuation metric and look for stocks where this yield is meaningfully greater than the cost of capital--defined as a high-yield bond index yield plus a spread. The managers won't pay up for future earnings growth, so they'll allow the portfolio's cash stake to climb when they can't find bargains.

The fund has been a long-term winner, particularly during market downturns. Since the fund's May 1998 inception through December 2016, its 9.7% annualized gain beat the benchmark's 8.6%, with much lower volatility. Most of this outperformance occurred during periods when the market fell significantly, such as when the tech bubble burst in 2000-02 and the financial crisis of 2007-09. The fund's focus on highly profitable and conservatively financed firms, as well as its willingness to hold sizable cash reserves, lends confidence that it will continue shining on the downside. On the flip side, investors should expect this fund to lag during strong bull markets, as it has done during the trailing five-years ended December 2016. The fund's large cash balance during the same period accounted for the bulk of underperformance, although some technology picks did drag slightly on results.

Retirement Planning for Special-Needs Families
Mark Miller shares some thoughts on the challenges of retirement planning for special-needs families here.

 

 

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