8
Pedigree matters. The Parent component is one of
the most significant of the five ”Pillars”—which also
include Process, Performance, People, and Price—
that determine a fund’s Morningstar Analyst Rating.
Of the
435
funds in the FundInvestor
500
that our
analysts have rated so far, only six have a Negative
Parent rating. In contrast,
66
have Negative Price
ratings. Some active managers can clear the hurdle
of above-average expenses. But a company that
does not foster a strong investment culture, retain
top management, and align managers’ interests
with shareholders’ is unlikely to produce great long-
term investments.
When we rate fund companies broadly as Positive,
Neutral, or Negative, we gather information on a
number of factors, including corporate culture, fees,
manager incentives, regulatory history, and the
quality of the board of trustees. We sifted through
our notes to pull out those fund companies that
highlight the best and worst practices.
These are the standouts on both extremes.
The Biggest and the Best
Four fund shops account for more than a fourth of the
FundInvestor
500
funds: Vanguard, American Funds,
T. Rowe Price, and Dodge
&
Cox. This isn’t simply
because they are big—they are also among the best.
Vanguard’s mutual ownership structure guaran-
tees that fund investors get a fair deal. In the United
States, fund shareholders own Vanguard itself
through the funds, so the firm operates at cost, not
for profit. As a result, more than
99%
of all fund
share classes have expenses that are among the low-
est for their category. The firm is synonymous with
index investing, but it has proved a good steward of
subadvised actively managed funds, closing them
when necessary to protect their strategies. While
it has aggressively expanded its lineup in recent
years, it has done so with a diverse range of funds
with bargain-priced
ETF
share classes, such as
Vanguard Total International Bond Index
, slated
to open this quarter.
American Funds represents the sensible side of active
management. Its multiple-manager approach has
produced consistently competitive risk-adjusted re-
turns and a strong investment culture with high
manager and analyst retention. The managers are
heavily invested in the funds they manage, and their
bonus calculations include eight-year performance,
which frees them to focus on long-term results. The
funds’ expenses are low.
T.Rowe Price has also proved able to attract and retain
talent. Its stock-picking, based on in-house funda-
mental analysis, has produced reliable winners; its
fixed-income offerings are strong, too, bolstered
by reasonable expenses. As with Vanguard and Amer-
ican Funds, one can safely recommend T. Rowe Price
to just about anyone. Their funds range from sound to
outstanding and are diverse enough to provide one-
stop shopping for most investors.
Dodge
&
Cox is an exemplary fund company that won’t
necessarily be to everyone’s taste. The employee-
owned firm is run with the long term in mind. As with
American Funds, there are no stars, although the
managers work collaboratively (rather than taking
charge of individual sleeves of a portfolio). The
managers are also heavily invested in the funds, and
expenses are very low. However, although Dodge
Some of the Best and Worst
Fund Companies
Morningstar Research
|
Laura Lallos
Best Fund Companies
Worst Fund Companies
American Funds
AllianceBernstein
Dodge & Cox
Dreyfus
FPA
DWS Investments
Hussman Funds
Forward Funds
Longleaf Partners
Gabelli
Mairs & Power
Grant Park
PRIMECAP Odyssey Funds
Guggenheim Investments
Sequoia
LoCorr Fund Management, LLC
Sound Shore
Quaker
T. Rowe Price
UBS
Vanguard
