9
Morningstar FundInvestor
March 2
013
dramatic as
CGM
’s, either: Performance is less
extreme, the firm has other analysts and managers,
and Marsico is in his late
50
s. However, a bout
of poor performance led to sizable outflows and a
slow exodus of portfolio managers and analysts,
including Doug Rao, who was a comanager of this
fund. Seven analysts have left the firm since
2010
,
thus raising concerns about the fund and the parent.
Unimpressive Strategies
Funds that don’t have a proven advantage also can
wind up stuck in Neutral. Funds with flawed strate-
gies and middling results are likely to earn this rating.
American Funds American High Income Trust
AHITX
fits this bill. The once-appealing fund has a
bloated $
21
billion asset base, credit quality that has
declined to the category average, and a team of
independent managers who can sometimes override
each other’s bets. Performance has likewise de-
clined from a former peak.
Brandywine
BRWIX
and
Brandywine Blue
BLUEX
also have suffered long bouts of underperformance.
We might be willing to bet on a rebound if we had
more faith in the strategy behind these funds. The
idea is to beat the market by using an army of
analysts and contacts to discover potential market-
moving news, such as a change in sales patterns,
the appeal of a new product, or a positive earnings
surprise. After the anticipated news comes out
or doesn’t, the funds move on to the next thing. The
problem is that information moves very quickly,
and scores of sell-side analysts are quite good at
doing the same thing. Thus, we don’t see a sustain-
able edge at these funds.
Proven Mediocrity
Sometimes it’s just a matter of summing up a record.
Pioneer Fund
PIODX
has been run by John Carey
since
1986
, and the fund’s cumulative return since
then is
867%
, compared with
1
,
067%
for the S
&
P
500
. That’s a big pile of evidence that there are more-
skilled managers out there. The
10
- and
15
-year
records are likewise mediocre versus peers and
the benchmark.
Permanent Portfolio
PRPFX
has a fine record, so
why am I including it here? The manager actually
has a poor history of stock selection as four other
funds that he runs have average to poor records. It’s
really just the fund’s allocation mix that has worked
for it, and you can easily build a similar portfolio
of exchange-traded funds and save a bundle on fees.
Finally, the firm has no analysts and only one
manager. That must make it extremely profitable for
management, but I don’t see why you’d want to
invest there.
It Doesn’t End Here
We have at least six ratings-committee meetings a
week. We review funds that already have been rated,
as well as some that haven’t. We aim to keep an
open mind to new evidence, though our focus is on
long-term fundamentals rather than recent results.
In fact, this week we raised two funds to Bronze from
Neutral, while lowering another to Neutral from
Gold, and yet another to Neutral from Bronze. You can
read more on these changes in Tracking Morningstar
Analyst Ratings.
œ
The Neutral Bin
Name
Ticker
Manager
Tenure Return
Benchmark
Return
Manager Tenure
(Longest, years)
Expense
Ratio
Columbia Value and Restructuring
UMBIX
21.8% 21.5%
4.08
1.04%
Fidelity Equity-Income
FEQIX
19.3%
21%
1.42
0.68%
Marsico Focus
MFOCX
6.7% 3.9%
15.25
1.34%
Pioneer
PIODX
8.9% 9.8%
26.67
1.09%
American Funds American Hi Inc
AHITX
8.8% 9.2%
23.25
0.69%
Laudus Growth Investors US Lg Cp
LGILX
10.7% 9.1%
0.33
0.78%
Returns are from the start of the manager’s tenure through January 2013. Columbia Value and Restructuring
named comanagers four years ago, but they did not take over until 2012.
