Morningstar Advisor - February/March 2012 - (Page 70)

Screens On the Prowl for Large-Blend Index-Beaters By Christine Benz Beating the index isn’t as easy as it used to be, but this screen can turn up large-blend funds that are up to the task. Over the past few years, beating the S&P 500 has been a layup for many actively managed funds. Small-cap stocks, mid-caps, and even smaller large caps had, until recently, outperformed, so managers of active funds had only to underweight the giant caps that dominate the index to edge past it. The tables turned in 2011, however. Owing to fears of an economic slowdown, smalland mid-cap stocks tumbled, while large caps and mega-caps held up relatively better. All of a sudden, beating the index doesn’t look all that simple. Through Dec. 14, the average actively managed large-blend fund in Morningstar’s database had lost about 4.9% for the year to date, whereas S&P 500 Index funds had lost a little more than 3 percentage points less. Most active funds de-emphasize the index’s biggest constituents, and many hold hard-hit foreign stocks, likely explaining at least part of the shortfall. To help identify large-cap-blend funds that have managed to outperform the S&P 500, we turned to Morningstar Principia. We started by screening for nonindex large-cap-blend funds that Morningstar covers. (Advisors could also choose to use the S&P 500’s trailing one-year return.) And Total Return YTD > –1.69 Special Criteria And And And And Purchase Constraints Analysis Morningstar category Special Criteria 5 Distinct Portfolios Only 5 Closed–New Investment / 5 N/A / 5 Large Blend 5 Index Funds / To help identify short-term outperformers that appear to be good bets on a forwardlooking basis, too, we layered on screens for below-average costs (for 2011 through Nov. 18, the Morningstar large-blend category average expense ratio was 1.14%) and reasonably long manager tenures (five years or better). And Audited Expense Ratio Manager Tenure (Longest) , 1.14 > 5.0 Then, we looked for funds that delivered better numbers than the S&P 500’s 1.69% year-to-date loss through Dec. 14. And 70 Morningstar Advisor February/March 2012

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2012

Morningstar Advisor - February/March 2012
Letter From the Editor
Make a Difference Stories, Not Debates
How Concerned Are You About Europe?
Analytical and Independent
What to Ask When a Fund Manager Leaves
Past, Present, Future
Have Financials Gotten Cheap Enough?
Four Picks for the Present
Investment Briefs
Tactical Funds Miss Their Chance
Specialty Retail: Ad Hoc Opportunity
How Europe Is Making Its Crisis Worse
Impact on U.S. Economy Will Be Minimal
European Banks: Bargains or Value Traps?
Don’t Count the Euro Out Yet
Europe on the Brink
GoodHaven Realizes Its Vision
How Index Trading Increases Market Vulnerability
Nonlisted REITS: Handle With Care
Safety Picks for the Many Moods of Mr. Market
On the Prowl for Large- Blend Index-Beaters
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Math That Matters

Morningstar Advisor - February/March 2012