Morningstar Advisor - October/November 2011 - (Page 20)

Investment Briefs Watch Out for Big Brokerage Costs Morningstar mutual fund analyst Rob Wherry recently looked through the SEC filings of equity funds that had turnover rates above 100%. He compared the funds’ dollar value of the trading commissions with their average net asset figure. He used 2010 numbers because fund companies typically only publish these figures once a year. Over the past decade, Brandywine BRWIX and Brandywine Blue BLUEX have consistently produced a turnover rate higher than 200%. In 2010, Brandywine and Brandywine Blue racked up commissions of $11.2 million and $10.4 million, respectively, or 0.59% and 0.48% of their average net assets. That’s up from 0.47% and 0.33% in 2007. The differences can be attributed to a recent spat of poor performance that has led to asset outflows. As the funds have gotten smaller, the trading costs have eaten up a higher percentage of assets. CGM Focus CGMFX manager Ken Heebner’s rapid-fire trading has produced big numbers, but coming out of the 2008 downturn, this fund has hit a few headwinds. Heebner has racked up considerable commissions, including a whopping $71 million in 2008. The fund’s $24 million tally last year was 0.79% of average assets. That’s up from 0.53% in 2007. Cerulli Says: Everyone Benefits From a Second Opinion In a recent survey, Cerulli Associates asked advisors to describe their portfolio-construction process. The results show that the home office of broker-dealer advisors have a high influence in the process: 31% of B/D advisors either start with a model suggested by their B/D and customize it for clients or use the B/D’s model as suggested. Process Descriptions B/D RIA All Advisors Start with my practice’s preferred model, alter as necessary Start with model suggested by B/D supplied system, alter as necessary for client needs Create custom portfolio for each client Use third-party provider models Use my practice’s preferred models Use model suggested by B/D supplied system Start with third-party models, alter as necessary Sources: Cerulli Associates, in partnership with Morningstar. 30.7% 24.5% 21.9% 9.3% 6.8% 6.5% 0.2% 52.6% 0.0% 10.5% 0.0% 21.1% 0.0% 15.8% 32.9% 22.0% 20.8% 8.4% 8.3% 5.8% 1.8% Dividend Funds That Live Up to Their Names Fund analyst Greg Carlson tracked down several stock funds with a consistent record of paying above-average dividends that also have experienced skippers and solid track records. Vanguard Equity-Income VEIPX This large-value fund at the end of July had a healthy 12-month payout of 2.72% and a one-month yield of 2.86%. Michael Reckmeyer of Wellington Management (who runs 60% of the fund) and Vanguard’s quantitative investing group (which manages the rest) typically stick with companies that have solid balance sheets and generate plenty of cash. Its low (0.31%) expense ratio lets more of its holdings’ dividends flow to shareholders. Allianz NFJ Dividend Value PEIDX The management’s focus on big, steady companies led to a poor relative showing in 2009’s big bounceback rally led by cyclicals, but it has delivered the goods over lead skipper Ben Fischer’s 11-year tenure. The Institutional share class’ modest fees have boosted its yield (3.04% over 12 months), but the no-load D shares don’t cost much more. American Beacon International Equity AAIPX Fidelity International Capital Appreciation’s FIVFX turnover rate has ballooned under new manager Sammy Simnegar. He says that the typical holding period for a majority of the fund is around a year, with the rest being rapidly bought and sold. Since Simnegar has taken over, the fund has racked up about $15 million in commissions. Trading accounted for 1.29% of assets in 2010. Trading commissions aren’t the only common thread here. None of the funds commands a recommendation, a testament to the difficulties in pulling off a strategy that can run up costs. This broadly diversified foreign large-value fund’s recent 1.85% 12-month yield is a reflection of the relatively attractive valuations of dividend payers, the fund’s well-below-average expense ratio, and the fact that non-U.S. firms often have solid yields. American Funds International Growth and Income IGAAX This fund aims for a pre-expense-ratio yield of 3.5%—its 2.7% one-month and 3.3% 12-month yields are net of its 0.93% expense ratio. While that lofty target has led to sizable stakes in utilities and telecom, the overall quality of the fund’s holdings has been solid. 20 Morningstar Advisor October/November 2011

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2011

Morningstar Advisor - October/November 2011
Contents
Contributors
Letter From the Editor
The Emotional Burden
Where Are You Going for Yield?
Ahead of the Curve
How to Use a ‘Collar’
Why Dividends
Is Bond Investing All Uphill From Here?
Four Picks for the Present
Investment Briefs
The Risks of Stretching for Yield
For Banks, Uncertainty Reigns
The Virtues of Dividends
How Well Do You Know Templeton Global Bond?
The Case for Dividends in Emerging Markets
Finding Refuge in Value
Swift, Smooth, and Silent
Crack Open Closed- End Funds to Avoid the Relevance Paradox
Getting Beyond Labels in the ‘To vs. Through’ Debate
Handling the Headwinds
Bonds, Short-Term Bonds
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
A Prisoner of Pricing

Morningstar Advisor - October/November 2011

https://www.nxtbook.com/nxtbooks/morningstar/magazine_2024q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2023q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2022q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2021q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q4
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q3
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q2
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2020q1
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019winter
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019fall
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019summer
https://www.nxtbook.com/nxtbooks/morningstar/magazine_2019spring
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20191201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20180203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20181201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20170203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20171201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20160203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20161201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20150203
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20151201
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20141011
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140809
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140607
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140405
https://www.nxtbook.com/nxtbooks/morningstar/magazine_20140203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20141201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20130203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20131201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120405
https://www.nxtbook.com/nxtbooks/morningstar/investorconference2012
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20120203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20121201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20110203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20111201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405_lincoln
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20100203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20101201
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20091011
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090809
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090607
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090405
https://www.nxtbook.com/nxtbooks/morningstar/advisor_20090203
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007fall
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2007summer
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008spring
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008catalog
https://www.nxtbook.com/nxtbooks/morningstar/advisor_2008winter
https://www.nxtbookmedia.com