(PUB) Investing 2015

March 2015

Morningstar FundInvestor

9

or showing them the door. With that turnover often came major changes in strategy, which is disruptive for fundholders who have a carefully planned portfolio. The turnover also may have had another implication: If managers were unsure of the length of their assignment, they may have been reluctant to invest heavily in their own funds. And indeed, Fidelity’s manager investment had been fairly weak, which is surprising considering how much the firm values research. With some new senior leadership on the equity side, along with some pressure from the equity funds’ board of directors, things are changing. Fidelity has improved its manager-retention rates and has extended manager tenures, even on some of its sector funds. Perhaps using Joel Tillinghast’s small-cap team as a model, it has attempted a higher level of collaboration among like-minded portfolio managers.

To address key-man risk, Fidelity has also begun to build management teams. Take Will Danoff’s successful franchise as an example. While Danoff remains Fidelity Contrafund ’s FCNTX only named manager, he has shared the reins on Fidelity Advisor New Insights FNIAX , a similarly run fund, with John Roth since September 2013 . Meanwhile, Fideli- ty’s manager coinvestment has improved. These changes have led Morningstar analysts to move Fidelity’s Corporate Culture and Manager Incen- tives grades to B from C. Overall, Fidelity now earns a Stewardship Grade of B. J.P. Morgan’s Culture Continues to Impress Like Fidelity, J.P. Morgan has continued to improve. A result of several mergers, the bank has done a good job of maintaining autonomy among its several invest- ment groups—its Columbus, Ohio, fixed-income group is particularly strong, and its target-date series was named Morningstar’s 2014 Allocation Fund Manager of the Year—while also creating a singular identity for the firm. To a large extent, J.P. Morgan can thank its outside salesforce, which has a reputa- tion for being more educative and consultative than sales-oriented. That’s a model that its competi- tors admire and have begun to copy. Meanwhile, J.P. Morgan’s manager investment numbers are solid, and recent changes to its compen- sation plan are fundholder-friendly. More specifically, the firm added a 10 -year evaluation period to its bonus calculation for equity-fund managers, and it now also requires 100% of a portfolio manager’s deferred compensation go into J.P. Morgan funds and not J.P. Morgan stock. Morningstar upgraded both the firm’s Corporate Culture and Manager Incentives grades to B from C, which resulted in its overall Stewardship Grade moving up to a B. œ Contact Bridget B. Hughes at bridget.hughes@morningstar.com

Key Measures of Stewardship

Firm Manager- Retention Rate 5-Year %

Firm Asset-Wgtd Manager Tenure (Longest, Years)

Firm Risk- Adjusted Success Rate 10-Year

% Assets Manager Inv >$1M

Stewardship Grade

Name

Vanguard

A

92.82

11.90

80.00

13.85

Fidelity

B

92.10

8.90

31.00

56.51

American Funds

A

95.48

20.90

68.00

97.17

T. Rowe Price

A

94.63

11.20

79.00

30.08

Franklin Templeton

B

95.75

15.40

37.00

60.88

PIMCO

C

90.09

3.90

59.00

50.17

JPMorgan

B

95.13

10.80

31.00

54.44

DFA

B

91.64

10.50

58.00

0.00

BlackRock

C

88.05

11.70

23.00

65.35

OppenheimerFunds

C

90.69

9.30

32.00

51.38

Dodge & Cox

A

96.71

25.80

75.00

100.00

MFS

B

94.37

11.20

42.00

44.50

Columbia

C

86.76

8.90

16.00

16.16

Invesco

C

84.22

11.00

26.00

64.29

John Hancock

C

90.59

7.50

18.00

18.64

Wells Fargo Advantage C

92.72

9.90

28.00

20.29

Principal Funds

C

80.47

7.20

31.00

0.00

Lord Abbett

B

90.20

9.30

39.00

57.44

Janus

C

93.12

6.60

35.00

57.12

American Century

C

92.69

11.20

38.00

5.37

Industry Average

92.56

—

43.27

46.56

Data through Feb. 28, 2015.