Morningstar Advisor - October/November 2012 - (Page 23)

Investment Briefs How Highly Does Fidelity Rate? Since launching the Morningstar Analyst Rating nearly a year ago, Morningstar analysts have assigned ratings to 80 Fidelity offerings, Morningstar senior fund analyst Christopher Davis reports. The rating is based on analysts’ assessment of the people, process, performance, parent, and price behind the funds. Davis says that as a shop Fidelity fared decently: 45 (56% of the Fidelity funds we rated) garnered a positive rating—that is, Bronze or better. A hefty chunk—31 funds— landed in Neutral territory, with just four earning a Negative rating. To put that in context, its largest competitors—American Funds, T. Rowe Price, and Vanguard— scored better. In American’s case, 27 of 35 funds (77%) rated by Morningstar analysts notched positive ratings. At T. Rowe, 44 of 53 funds (81%) rated positively. Vanguard shone most brightly, with 74 of 80 rated funds (92%) notching positive ratings. None of the three shops had a Negative rating in its lineup. This isn’t to say there aren’t areas of strength. All 13 of Fidelity’s Gold-rated offerings are bond funds. In part, that’s because the funds are reasonably priced. More importantly, the Merrimack, N.H.-based bond operation boasts highly seasoned, tightly knit teams in both the taxable- and municipal-bond realms. The groups use cutting-edge technological tools to stay ahead of the competition, but their success also stems from sensible, straightforward processes. Jamie Pagliocco and the entire muni-bond team have delivered terrific long-term returns at funds such as Gold-rated Fidelity Tax-Free Bond FTABX without taking on loads of leverage and credit risk. And taxable-bond specialists like Bill Irving, Ford O’Neal, and Jeff Moore have built fine records at Gold-rated funds such as Fidelity Investment Grade Bond FBNDX Cerulli Says: Advisors Expect to Reap Rewards From Retirement-Income Transition We’ve heard from some advisors that they are worried that retirement-income distributions will hurt their bottom line, but a recent survey found that 74% of advisors actually expect to increase their revenues due to the provision of retirement-income advice. Only 4% of advisors expect investor retirement distributions to negatively affect their revenue stream. But capturing these revenues is complicated. The most sought-after assets are usually spoken for years before actual rollover transactions take place. These high-net-worth retirees often already have an advisor relationship and are reluctant to switch providers after retirement. Meanwhile, large retirement-plan record-keepers are more aggressively courting the same investors to move to their retail IRA platforms at retirement. Therefore, unless advisors have a specific niche strategy for attracting rollover dollars from new clients post-retirement, they may be best served by considering rollovers as an opportunity to increase wallet share with current clients rather than a distinct prospecting opportunity. Percent of Advisors Who: Expect practice’s revenue to increase as more clients seek retirement income advice. Expect to use a wider range of investment vehicles to meet clients’ retirement-income needs. Intend to expand advice offerings to create more revenue opportunity. Say clients’ prudent rates of withdrawal should not affect the principal in accounts under management. Expect to add clients to compensate for declining asset base. Say clients have enough money that retirement spend-down will not affect advisor’s overall assets under management. Plan to increase use of alternative fees (hourly, retainer, etc.) to compensate for smaller accounts. Expect my practice’s revenue to decrease as clients spend down their assets. Sources: Cerulli Associates, in partnership with Morningstar 74 52 40 38 29 27 16 4 and Fidelity Total Bond FTBFX with welldiversified portfolios and strong security-bysecurity research. By sequestering the fixed-income folks from the Boston mother ship, Fidelity has helped insulate them from the cultural faults that hurt the equity funds’ ratings. To be sure, the stock funds enjoy many of the same advantages as their fixed-income counterparts. For one, costs are generally moderate. In fact, only one fund ranked Negative on price. And 23

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2012

Morningstar Advisor - October/November 2012
Letter From the Editor
Ill Communication
Do You Use Factor-Investing Strategies?
Practicing What She Preaches
How to Determine the True Price of ETFs
The Quant Factor
Managers Dispute the Death of Equities
Investments á la Carte
Investment Briefs
Five Inconvenient Truths of Manager Research
Health Care’s Outlook Clarifies
Exploring the World of Factors
Uncloaking the Alpha Machine
Factor Strategies Gain Footholds in Practices
Big Mo
Fitting Factors Into the Formula
Clients Have a Friend in Luther King
Less-Liquid Holdings Mean More-Solid Results
Retirement-Withdrawal Strategies Quantified
Amid Turmoil, Don’t Discount Foreign Equities
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Should I Stay or Should I Go?

Morningstar Advisor - October/November 2012