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.

 
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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
Argentina's Stock Market Plummets, and More

Argentina's stock market lost half its value on Monday. You can read The New York Times story here and The Wall Street Journal story here.

The impact on your portfolio is probably tiny. The largest Argentina equity weighting of any fund in the Morningstar 500 was Lazard Emerging Markets' LZOEX 2% weighting. The fund lost 1.8% yesterday, but the fund is still up 1.6% on the year.

However, T. Rowe Price Emerging Markets Bond PREMX had 7.4% in Argentine debt, and Fidelity New Markets Income FNMIX had 6.4% in Argentine debt. The funds lost 2.2% and 2.3%, respectively, yesterday. The two funds still have healthy returns of more than 8% for the year to date.

American Century Value Downgraded
We lowered American Century Value TWVLX to a Morningstar Analyst Rating of Bronze. Tom Nations explains here:

American Century Value’s seasoned manager still employs a solid approach, but recent struggles, analyst turnover, and a hefty price tag lead to a Morningstar Analyst downgrade to Bronze from Silver.

Lead manager Michael Liss adds a contrarian bent to American Century’s proven quality-driven process. Liss and the American Century value team start by screening for quality names, which they define as firms with robust balance sheets and strong competitive advantages. From there, Liss determines whether a firm’s valuation and risk/reward profile merit investment. He’ll add to names with uncertainty, such as General Electric GE, if he believes the issues are transitory.

This contrarian tilt, however, can lead to value traps if Liss’ thesis fails to materialize. For instance, Liss swapped quality for cheap valuations during oil’s 2014-16 price collapse, leading to an overweight to the volatile energy sector. The share prices of picks such as EQT EQT and Cimarex Energy XEC have since cratered.

Recent blunders have eroded the fund’s previously strong long-term record and altered its risk profile. In Liss’ first seven years on the job, the strategy edged the Russell 1000 Value Index and most large-value Morningstar Category peers, including on a risk-adjusted basis. However, Liss’ poor contrarian picks during the past four years have sunk returns and steadily increased the fund’s standard deviation, a measure of volatility. It’s also unsettling that the fund lagged in 2018’s 11-month peak-to-trough correction since it had lost less than the index in the prior four market corrections. The team’s recent analyst churn, with seven of nine supporting analysts joining in the past four years, and the fund’s above-average price tag also curb the strategy’s outlook.

Yet there’s reason for optimism. The core management team is stable and accomplished. Liss is an experienced investor who has previously navigated the strategy through team changes and bouts of underperformance. To be sure, there’s reason for caution. But Liss’ continued use of an established process makes this strategy a solid long-term holding.

 

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