Morningstar Advisor - Fall 2008 - (Page 27)

approximately 6,000 funds), the figures that jump off the page are those that show no management ownership. Forty-seven percent of U.S.-stock funds report no manager ownership. It gets worse from there. Fully 61% of foreign-stock funds have no ownership, 66% of taxable-bond funds have no ownership, 71% of balanced funds put up goose eggs, and 80% of municipal-bond funds lack ownership. There are really only two excuses for not owning a fund you run. First, if you run a single-state municipal-bond fund for a state other than the one in which you live, it doesn’t make sense to own that fund, because you won’t benefit from the tax breaks. Second, managers who are citizens of foreign countries might be barred by their country from investing in U.S.-domiciled funds. A number of foreignstock funds are run by foreign citizens, which might account for the ownership difference between U.S.-stock funds and internationalstock funds. For managers who run niche funds or run a lot of funds, there’s good reason for them to be at the lower end of the ranges, but not at zero. The number of managers showing no faith in their process is staggering. Unless a manager can make one of the cases I mentioned above, I can’t think of why anyone should invest in a fund that its own manager doesn’t invest in. True, high ownership levels aren’t a guarantee of success or an ethical manager, but at least they show that managers believe in the funds and they pay some of the costs and taxes that the rest of shareholders do. Looking at Our Picks and Pans Manager Investment Breakdown Level of Ownership Domestic Equity # of Funds % Intl Equity # of Funds % Balanced # of Funds % Taxable Bond # of Funds % Municipal Bond # of Funds % >1,000,000 500,001–1,000,000 100,001–500,000 50,001–100,000 10,001–50,000 1–10,000 0 Total # of Funds Data as of June 30, 2008. 349 130 498 211 265 92 1350 2895 12 4 17 7 9 2 47 70 18 98 41 44 21 450 742 9 2 13 6 6 3 61 38 12 77 29 38 11 514 719 5 2 11 4 5 2 71 31 7 86 61 99 44 639 967 3 1 9 6 10 5 66 4 5 18 14 25 46 447 559 1 1 3 3 8 8 80 50 Largest Fund Families, Ranked by Average Manager Ownership Rank Fund Family Avg Manager Ownership ($) Rank Fund Family Avg Manager Ownership ($) 1(T) 1(T) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 First Eagle Oakmark Artisan Dodge & Cox Royce Davis American Funds Julius Baer T. Rowe Price Janus Lord Abbett Thornburg Putnam MFS Vanguard Natixis Fidelity Morgan Stanley Invesco AIM Pioneer Allianz AllianceBernstein Van Kampen JennisonDryden Evergreen Franklin Templeton Harbor 1,000,000 1,000,000 737,750 664,773 537,826 499,412 459,733 312,917 236,888 227,172 207,929 196,452 171,471 165,413 164,343 155,641 149,073 141,951 139,512 137,614 129,211 115,833 113,273 110,234 108,099 97,089 94,231 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49(T) 49(T) American Century Ivy Columbia Wells Fargo Advantage BlackRock Eaton Vance RiverSource JP Morgan GMO Goldman Sachs Federated Oppenheimer USAA PIMCO Legg Mason Partners DWS-Scudder Schwab John Hancock Dimensional Russell ING Retirement Transamerica SEI 85,862 83,333 81,762 77,263 71,020 67,770 61,066 60,137 56,754 49,308 47,929 47,379 44,314 41,935 36,067 25,515 14,030 12,014 11,645 9,677 500 0 0 We’re not the only ones who have more conviction in our Mutual Fund Analyst Picks than our Analyst Pans. (See page 82 for a complete list, with performance numbers, of our Analyst Picks.) Assuming the midpoint of each range, we found that managers of our Analyst Picks had an average investment amount of $370,000 in their funds, compared with an average of $54,000 for managers of our Analyst Pans. That’s a factor of nearly seven Data as of June 30, 2008. Largest fund families by assets, ranked by average manager ownership across all funds. MorningstarAdvisor.com 27 http://www.MorningstarAdvisor.com

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Morningstar Advisor - Fall 2008 Contents New on MorningstarAdvisor.com Letter from the Editor Contributors Inbox Are You Preparing for Higher Taxes? State of Financials Oracles of Alabama Investment Briefs Managers’ Investment Secrets Revealed Conformity Becomes a Growing Concern at American Gimme Shelter Location, Location, Location Rooted in Buffett, Going for Growth Keeping Little Company Away from the Numbers Consumer Confidence What about Natural Gas? TIPS to Beat Back Inflation Investing in Hidden Assets Funds That Have an Edge Come Tax Time Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar One for You, 19 for Me

Morningstar Advisor - Fall 2008

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