Morningstar Advisor - June/July 2012 - (Page 10)

On Topic How Important Is Stewardship? Let us know your thoughts at magazine_editor@morningstar.com “Very. The most important are: 1. Ownership. We ask all fund managers how much they own of the funds they manage. This is always important to us, but it’s especially important if the fund is not a sector fund. So a large-cap value manager would be credible to us if he or she owned $1 million of the fund. regulatory boards also are very important. I still refuse to deal with companies because of the late-day-trading scandal that happened years ago.” David J. Lutz Jr., CFP Celtic Financial Services LLC McMurray, PA Quick Poll (given April 30, 359 responses) 1 Do you believe that a mutual fund company’s stewardship has an effect on the performance of its funds? Yes No 2 How important is it to your clients that they invest with fund companies that are good stewards? Very important Important Not important They have no opinion 3 Based on stewardship issues, what grade would you give the mutual fund industry? A B C D F 4 Do you think mutual fund companies are improving or regressing in being good stewards of shareholders’ money? Improving Regressing No change 37.1% 14.9% 48.0% 2.0% 36.4% 51.8% 7.8% 2.0% 39.2% 44.5% 9.0% 7.3% 87.1% 12.9% 2. Closing funds. Managers who close their funds are very respected by us. It causes us more work, but we will stick with the fund and look for a replacement for new accounts. 3. Fees. Low fees are becoming more important to us in what we believe is a low-return market for the foreseeable future. “We do not single out any particular area, but we do like managers who have been around awhile and funds that have a definitive process. We like managers to have skin in the game, but there are times when this is not always feasible. Clean regulatory records are always a must.” Jack Riashi, CFP Bloom Asset Management Farmington Hills, MI 4. Regulatory. Clean records are very important.” Alex Petrovic, CFP Petrovic Financial Services Kansas City, MO “Fees are important, but not the end all. I’d be glad to pay 2% if the fund is making us 15%. Managers who invest in their own funds are very important. Also, manager tenure is among the top criteria. This way, we can see who can be recognized or blamed for performance.” Robert Richards, CFP EPA Financial Services Toms River, NJ “Not much. I’m more interested in manager tenure, turnover ratios, returns that are consistently above the peer-group average, and operating expenses that are below the peer-group average.” Timothy Knotts, CFP The Hogan-Knotts Financial Group Red Bank, NJ “As an advisor for Romanian customers, I think all stewardship elements are important. But the most important are low 5 Of the choices below, which stewardship area is the most important to you when you are selecting mutual funds for clients? Manager ownership Corporate culture Fees Regulatory record None of these 19.9% 31.3% 33.7% 9.8% 5.3% fees and the amount managers invest in their own funds.” “Company stewardship is paramount. Low fees are very important, as are managers who ‘eat their own cooking.’ Clean Mihnea Barbulescu SAI Erste Asset Management Bucharest, Romania 10 Morningstar Advisor June/July 2012

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2012

Morningstar Advisor - June/July 2012
Contributors
Letter From the Editor
Be Worth Remarking About
How Important Is Stewardship?
From West Point to Points East
Where a Fund’s Secrets Lie
Getting Fund Directors on Board
Managers Prep for Housing Rebound
Four Picks for the Present
Investment Briefs
A Hedge Against Career Risk
Natural Gas Reaches Capitulation
Family Matters
How Good Stewardship Predicts Superior Performance
Stewardship Goes Back to the Fundamentals
On the Go for Fixed Income
Where Shareholders Ride First Class
Dangers Lurk in Exchange-Traded Notes
Stocks on Sale in a Strong Market
A Good Steward Is Easy to Find
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
Buffett Rule’s Biggest Losers

Morningstar Advisor - June/July 2012