Morningstar Advisor - February/March 2013 - (Page 70)

Screens Diversified Stock Funds That Earn Their Stars By Adam Zoll Use this screen to find broad portfolios that have outperformed their peers. If you regularly read articles written by Morningstar’s experts, you’ve no doubt read discussions of the importance of diversification in managing portfolios. Holding too many assets in one particular area of the market can have disastrous effects, especially if your client’s asset allocation is not in sync with his or her capacity for risk. When it comes to stock mutual funds, however, some investors might assume that concentrated is better. Some of the fund world’s biggest stars—from Bill Nygren of Oakmark OAKMX to Bruce Berkowitz of Fairholme FAIRX—have managed notably concentrated portfolios. Moreover, investors might view concentration as a sign of truly active management, whereas sprawling portfolios with hundreds of stocks might have difficulty distinguishing 70 Morningstar Advisor February/March 2013 their performance from that of a broad market benchmark. Whether concentrated or diversified funds are better is a matter of personal preference. The important thing is that the whole of an investor’s portfolio matches his or her investment goals and time frame, and that both concentrated and diversified funds can play a role. For investors who prefer diversified funds, finding active managers who outperform consistently can present a challenge because of the sheer number of holdings that must be researched and traded as part of the fund’s portfolio management. We will use this screen to find actively managed diversified funds that have outperformed their peers over a long time period. Morningstar Category  Domestic Stock And Special Criteria /  Index Funds And Total Number of Holdings  250 And Morningstar Rating  QQQQ First, we’ll screen for domestic-stock funds with at least 250 holdings and Morningstar ratings of 4 or 5 stars. We screened out index funds so as to include only actively managed funds. And Morningstar Analyst Rating  Bronze Next, we want to stick with funds rated Bronze or better by Morningstar’s fund analyst team to ensure that fund managers have been vetted.

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2013

Morningstar Advisor - February/March 2013
Letter From the Editor
Social Media, the Old- Fashioned Way
Do You Use Active Strategies?
Youth Appeal
How to Buy the Unloved 2013
Morningstar Managers of the Year
Investments á la Carte
Investment Briefs
Approaches to Absolute-Return Investing
In Agriculture, It’s Good to Be Strong
Yes, There Are Good Active Funds
The Decoupling
Where It Could Pay to Be Active
The Active Fund That Defies Obsolescence
The Epitome of an Active Manager
Lines of Communication
The Existence of Market Timing ‘Intelligence’
A Route to Commodities that Bypasses the Futures Market
Best Positioned for Health-Care Reform
Diversified Stock Funds That Earn Their Stars
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
A Twisted Debate

Morningstar Advisor - February/March 2013