Picks reveal Morningstar’s thinking
Fund committee replaces 2 of its 401(k) choices
By HANK EZELL Cox News Service
Sunday, August 10, 2003
Atlanta — Morningstar, a well-known and widely quoted information company, is packed with bright young people who earn their daily bread analyzing mutual funds.
Their information and insights are followed by hundreds of thousands of investors and money managers.
It’s worth watching when the analysts select — from a universe of more than 11,000 mutual funds — the ones where they will invest their own daily bread.
Morningstar’s 401(k) retirement plan offers 17 choices to the Chicago company’s several hundred employees. That array changed not too long ago, when the investment committee tossed out two name- brand funds and replaced them with similar, just-as-well-known funds.
The Turner Midcap Growth fund replaced Morgan Stanley’s Institutional Mid Cap Growth fund. In the realm of emerging market funds, American Funds New World superseded Templeton Developing Markets.
Morningstar’s selection committee makes its changes with reluctance.
“These are supposed to be long-term holdings, after all,” writes senior analyst Emily Hall.
Thus the reasons for those changes, and for the other 15 selections in the experts’ portfolio, offer lessons for investors everywhere:
“Management interruptus” was the reason for rejecting the Morgan Stanley fund. “Lead manager Arden Armstrong left the firm last year to start her own hedge fund. . . . The true appeal of this aggressive offering was Armstrong’s stunning record,” Hall noted.
The Turner replacement offers a solid track record, stable management and an “appealingly small” asset base, she added.
High costs were the reason for axing Templeton. “The fund’s sizable expense ratio was a real turnoff,” in Hall’s recounting. “In addition, the fund’s deep-value approach led to a fairly streaky record.”
The New World fund also invests in emerging markets but with a few twists. It lists bonds as well as stocks. Part of its assets go into U.S. and European companies that do business in emerging markets.
“That unusual portfolio should help temper volatility over the long haul — an appealing thought in an incredibly bumpy asset class,” Hall writes.
