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
Get Ready for Capital Gains Season
Funds distribute capital gains in December each year, but they provide estimates of those gains in late October and early November. By now just about all the major firms have made their estimates. Christine Benz has a roundup, including Yacktman funds making payouts of around 16%, T. Rowe Price Global Technology PRGTX paying out 21%, and Vanguard Mid-Cap Growth VMGRX distributing 13%. 

Oakmark Select Downgraded to Silver
We took Oakmark Select OAKLX down a notch to Silver. Here's Katie Reichart's report:

Oakmark Select can rebound from its slump, but stumbles with energy stocks and other errors of omission drop its Morningstar Analyst Rating to Silver from Gold.

The strategy can work for patient investors. Longtime manager Bill Nygren, joined by comanagers Tony Coniaris and Win Murray in 2013, relies on deep due diligence to find undervalued firms with shareholder-oriented management teams, an approach that's worked long term here and at the more diversified Oakmark OAKMX.

This 21-holding strategy, however, depends on standout stock-picking to succeed, and execution has not been consistent enough to merit the highest Morningstar Medalist rating. The team's unsuccessful venture into energy names (an all-time high stake of 11%) arguably doesn't play to the squad's bottom-up strengths. Predicting commodity prices and gauging macroeconomic risks aren't among the team's core competencies, yet those factors heavily influence these holdings. The team typically favors firms with reasonably predictable earnings, such as Mastercard MA. By contrast, Apache's APA calendar-year net income during the past decade has ranged from negative $23 billion to $4.6 billion, making it harder to accurately analyze and predict its operating performance. Plus, the strategy has a mixed record in energy, owning just four other names since its 1996 inception, including former laggards Newfield Exploration NFX and Cenovus Energy CVE.

Furthermore, it's not clear that the team's best ideas consistently make it into this focused strategy. It hasn't owned some of its more diversified sibling's biggest recent winners, including UnitedHealthGroup UNH, Apple AAPL, and others. That has sapped the portfolio's ability to compensate for its duds. As a result, it underperformed Oakmark by nearly 2 percentage points annualized during the trailing 15 years through October and lagged the S&P 500.

The strategy can bounce back. It posted a huge gain in 2009 after the 2007-09 financial crisis, and it's beaten the S&P 500 by 3 percentage points annualized since Nygren's 1996 start. Investors should stay the course.

The Calm Before the Storm
I chatted with Jeremy Glaser about last month's cover story on the coming pain for active management.

 

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