Morningstar Advisor - June/July 2012 - (Page 23)
Morningstar Creates Two New Foreign Categories
From time to time, Morningstar creates new categories for mutual funds and investment portfolios. We’d rather not. Our objective is to make it easier for investors to make appropriate investment decisions, and that task would be simpler if they had just a few types of funds to evaluate. But over the years, fund companies have added more and more variety to their menus, and many of the new options don’t look or behave like the funds populating the existing categories. So, we have been faced with a choice: either leave new types of funds in categories where they don’t fit well, making rankings and other statistics for those groups less useful as a result, or create new categories that have more logic and consistency to their membership. The latter option is preferable. For that reason, on May 1, two new Morningstar internationalfund categories appeared on the scene: foreign small/mid-blend and India equity. The new foreign small/mid-blend category has about two dozen members on the open-end side, not including multiple share classes, along with nine exchange-traded funds. Now, funds such as Vanguard International Explorer VINEX, whose portfolio has consistently landed in blend territory for nearly 10 years, won’t have to be forced into either a value or growth category. Among the crowd in this new group are a few funds that knowledgeable observers might be surprised to see. The managers of Oakmark International Small Cap OAKEX and First Eagle Overseas SGOVX, for example, are known as value-oriented investors. But their funds end up in the new blend group because on average their portfolios have landed squarely in the blend style box over the past three years or longer.
Cerulli Says: Where Would You Go?
Over the past decade, independent broker/dealers have made the case to advisors that their channel offered distinct benefits over the models offered in the employee advisor channels, such as wirehouses, banks, and regional and insurance B/Ds. The lures of increased payouts, broad product options, and greater flexibility to run their business as they see fit have drawn advisors to independence. A Cerulli survey found that an advisor’s independent options—independent B/Ds, RIAs, and dually registered—rank high as a destination of choice for advisors considering a change in affiliation. Although only 10% to 15% of advisors actually do change firms each year, the moves that do happen are a major driver of the growth in market share that Cerulli’s anticipates will occur in independent channels.
Employee Advisor’s Preferred Channel If Advisor Left Current B/D
Advisor’s Current Channel Preferred Channel If Switched Firms Bank Wirehouse Regional Insurance
No plan to switch Independent broker/dealer RIA Dually registered Regional broker/dealer Wirehouse Bank or bank trust Total “Independent” options
Sources: Cerulli Associates, in partnership with Morningstar, 2011 Note: Components do not sum to 100% because of rounding.
34% 16% 5% 5% 3% 3% 34% 26%
35% 12% 10% 7% 6% 25% 4% 29%
46% 13% 3% 10% 24% 3% 0% 26%
24% 48% 11% 12% 1% 0% 2% 71%
Until recently, there were not enough India funds to merit a category of their own. That changed in recent years. Today, there are 11 open-end funds, 10 ETFs, and three closed-end funds that focus on Indian equities. Putting them into their own group eases the task of making comparisons among them; they are no longer being ranked against funds that could invest across most of Asia. Their former category, Pacific/Asia ex-Japan, now provides more useful information as well. What was once a very heterogenous category has become much easier to navigate, with the subtraction of China-focused funds into their own category in October 2010 and now the migration of the India funds.
Funds That Buy Like Buffett
In honor of the Berkshire Hathaway BRK.B shareholder meeting in May, senior mutual fund analyst David Kathman calculated what mutual funds have the biggest weightings in Berkshire’s latest top 10 holdings (Coca-Cola KO, IBM IBM, Wells Fargo WFC, American Express AXP, Procter & Gamble PG, Kraft KFT, Munich Re MUV2, Wal-Mart WMT, Conoco-Phillips COP, and U.S. Bancorp USB, as of Dec. 31). Below are the 10 funds with the most Buffett-like taste in stocks. Kathman excluded sector funds,
Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2012
Morningstar Advisor - June/July 2012
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
A Hedge Against Career Risk
Natural Gas Reaches Capitulation
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