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 18, 2018
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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
2 Portfolio Managers Leave Artisan

Artisan Developing World's ARTYX Morningstar Analyst Rating has been placed under review following the surprise departures of associate managers Michael Roberge and Edward Su.

Manager Lewis Kaufman remains in charge of this diversified emerging-markets fund. He is a seasoned and skilled investor, and he continues to be supported by analyst David Ng and research associate Meng Ge. But the investment team only had five members. Roberge and Su began working on this fund before--and have more overall investment experience than--Ng and Ge. Thus, the departure of Roberge and Su is a significant development.

Loomis Sayles Value to Liquidate
Loomis Sayles announced today it will liquidate Loomis Sayles Value LSVRX. The firm said it will liquidate the fund on Aug. 30, 2018. The fund has $484 million in assets.

2 Vanguard Funds Upgraded
We have upgraded Vanguard Global Equity VHGEX to Silver and Vanguard Morgan Growth VMRGX to Bronze. Read the analyses below for details.

Vanguard Global Equity by Kevin McDevitt
Vanguard Global Equity has benefited from its increasing growth orientation, but it has fared well even against growth benchmarks, earning the fund an upgrade to a Morningstar Analyst Rating to Silver.

The fund's three remaining subadvisors continue to generate excellent results. Since value-oriented Alliance Bernstein was removed in August 2012, the fund has gained 13.1% annualized through May 2018 versus 11.1% for its MSCI ACWI All Cap benchmark. Despite its migration into growth territory during that time, the fund's volatility was slightly below the index's. In fact, the fund's downside-capture ratio versus the benchmark was just 91.6%.

That said, migrating toward growth has been a big advantage for the fund over the past six years. The MSCI ACWI Growth Index's 12.4% annualized return crushed the MSCI ACWI Value Index's 9.1%. The fund's own growth orientation shows in average P/E and P/B ratios that are both greater than the all-cap index's.

But the fund's growth bias doesn't explain all of its success. That's demonstrated in part by the fact that its 13.1% annualized return since August 2012 beat the MSCI ACWI Growth Index's 12.4% gain. To be sure, this is an imperfect comparison given this fund's all-cap nature and its mid- and small-cap holdings on average gave it a boost over large caps during that period. As of March 2018, the fund had 29% of its assets in mid- and small-cap stocks, which was greater than the MSCI ACWI All Cap Index's 24.3%.

Yet the fund remains less growth-oriented than the MSCI ACWI Growth Index. The portfolio's average price multiples are lower across the board. And while Amazon.com AMZN, Alphabet GOOG, and Apple AAPL are among its top 10 holdings, its 21% technology stake is well below the growth index's 29.8% weighting and matches the world large-stock Morningstar Category average.

Investors should be aware that the fund's growth leanings and mid- and small-cap holdings could create short-term volatility. But it has significant long-term advantages in its three subadvisors as well as its low cost.

Vanguard Morgan Growth by Alec Lucas
Vanguard Morgan Growth's strengths versus its large-growth Morningstar Category merit an upgrade in its Morningstar Analyst Rating to Bronze from Neutral.

The fund's edge over most rivals begins with a modest fee hurdle. The investor and admiral shares now charge 0.38% and 0.28% per year, respectively, compared to 0.89% for the large-cap, no-load peer median. Gross investment results here, in other words, could lag those of most peers by up to 50 annualized basis points and the fund could still come out ahead.

The fund's mix of four experienced and well-resourced subadvisors should keep it from cutting it that close. Wellington Management's Paul Marrkand oversees roughly half the assets and has anchored the lineup since late 2005. He works with two dedicated analysts and can draw on roughly 50 global industry analysts as well. Jennison Associates' Kathleen McCarragher runs about a quarter the fund. She joined in 2007 but has been a member of the nearly 20-person Jennison team running Gold-rated Harbor Capital Appreciation HCAIX since 1998. The remaining assets are split about evenly between veteran teams from Vanguard's Quantitative Equity Group and Frontier Capital.

The fund's record attests to its ability to outpace most actively managed peers. Even with several subadvisor changes since Marrkand started, the fund has beaten the category norm in every five-year rolling period through May 2018.

The fund has had less success against its Russell 3000 Growth Index. The subadvisors' combination of investment styles has in recent years led to a portfolio with very low active share--at present second lowest out of roughly 40 large-growth multi-cap peers--and results that closely track those of the index except in falling markets, where the fund has consistently underperformed.

The January 2016 removal of mid-cap specialist Kalmar could help bolster the fund's downside protection, though the fund lost more than the index in early 2018's sharp correction. Beating the index will be a challenge, but the fund is a good bet against its average peer.

 

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