It’s great to have the
2000
–
02
bear market so far in
the rearview. One of the strangest bear markets,
it crushed tech and other large-growth stocks while
leaving bonds and even a lot of equities outside
of large growth unscathed. Those of us who stayed
diversified rather than jumping on the tech band-
wagon had a relatively easy go of it, though it was
still very stressful to live through.
Vanguard Wellington
VWELX
, for instance, deliv-
ered a solid
5
.
8%
15
-year investor return thanks to a
prudent investment style, low costs, and no surprises.
So, it was quite different from the
2007
–
09
bear
market, which crushed almost everything but was
especially hard on large value—the home of big
banks and insurers. This is why I find
15
-year total
returns and
15
-year Morningstar Investor Returns
so enlightening. They capture the craziest part of the
dot-com bubble and the brutal bursting of the
bubble that followed. Those few years perfectly il-
lustrated the notion that markets tend to overdo
things in both directions.
I’ve run the total returns and investor returns for the
Morningstar
500
funds, and I’ll highlight those with
the best and worst
15
-year investor returns. Investor
returns are an estimate of the returns a fund’s share-
holders actually received. Because only a minority
of investors hold a fund’s shares for an entire
10
- or
15
-year period, few of them earn the exact same
return as the fund’s stated return.
Investor returns use fund flows to adjust returns so
that periods when more investors hold the fund
carry greater weight. Across the fund world the typ-
ical investor falls about
0
.
92%
per year short of
stated fund total returns. The gap between investor
returns and total returns essentially tells you how
well investors timed their investments. Both the abso-
lute investor-return figure and the gap are useful
information. The more important figure, though, is the
investor return as that tells how investors actually
fared. A small gap isn’t much consolation if the total
return and investor return are meager. You can find
a fund’s investor returns on the FundInvestor
500
tab
of our website
mfi.morningstar.com
.
All this comes with a caveat. Because timing is so im-
portant to investor returns, there is some luck in-
volved. A fund launched near the bottom of the market
might get inflows just as the markets are turning
up. That’s great, but of course a fund only launches
once. So, some funds that did exceptionally well
had some lucky breaks. There are some valuable prin-
ciples to glean from the big picture, however.
Themes
While you can see some categories repeated among
the top and bottom funds, the next
15
-year returns
might not match them. The greater lesson here is
which kind of funds work well and which ones don’t.
Volatility and extreme returns lead to bad results
because they mean the correction to a rally will likely
be more severe. Funds with huge three-year returns
should spark as much concern as excitement.
Continued on Page 3
15 Years of Funds
and Investors
Fund Reports
5
Dodge & Cox International
FMI Focus
Vanguard Health Care
Morningstar Research
8
A Tough Challenge for
Allocation Funds
The Contrarian
10
Good Bets for Strong
Investor Returns
Red Flags
11
Funds That Whiffed on a
Fat Pitch
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
Testing the Bucket Approach
to Retirement
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
FundInvestor 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel,
Director of FundResearch and Editor
FundInvestor
September 2013
Vol. 22 No. 1
Research and recommendatio s for the s riou fund investo
SM
