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Morningstar FundInvestor
March
2015
tently outperform, and that meant investors didn’t get
in too late.
Fidelity Tax-Free Bond
FTABX
,
Loomis Sayles
Investment Grade Bond
LSIIX
, and
TCW Total
Return Bond
TGLMX
produced outstanding investor
returns relative to their peers. On the equity
side,
AlllianzGI NFJ Small-Cap Value
PNVDX
,
Primecap Odyssey Stock
POSKX
, Primecap
Odyssey Aggressive Growth,
Fidelity Small Cap
Discovery
FSCRX
, and
Brown Capital Manage-
ment Small Company
BCSIX
were standouts.
Not only were they consistent winners, but they also
all closed to new investors at one time or another.
Closing to new investors works well in a couple of
ways. It helps to preserve management’s ability to run
the same strategy that had succeeded in the first
place, and it keeps people from piling in at the worst
time and then selling at the bottom.
Take-Away
The big improvement in investor returns is a happy
accident of the markets, but the details provide
a number of valuable lessons that we can apply to
improve our own results.
Focus on your plan, not the news. Market-timing is
very difficult to do well, so stick to your plan and keep
investing. Markets, after all, generally go up.
Look for lower-risk funds. Funds with High Morning-
star Risk ratings lead to lower returns and a wider
gap. After a long-running bull market, this is probably
more important than ever. Lower-risk funds may
appear rather unappealing, but you may well hold on
to these funds through the next downturn and sell
the high-risk funds at the worst time.
Find the right funds for you. If you have made a lot of
fund trades over the years, maybe you need to dial
down the volatility. Target-date funds are tremen-
dously diversified and therefore kind of dull. But that’s
a good thing. Dullness keeps emotions out of the
equation, and it is emotional investing that wrecks a
good plan. Target-date funds and balanced funds
can help you steadily reach your goals.
Look for funds and fund companies that close funds
before they get too big. You can do this by finding
funds that have closed in the past but have reopened,
such as
Perkins Small Cap Value
JSCVX
. In addi-
tion, some funds will name a closing target well in
advance so you can have some confidence that the
fund won’t suffer asset bloat going in. Some firms
like Primecap are particularly dependable at closing
funds. Others like Dodge
&
Cox, Vanguard, and T.
Rowe Price have closed funds, though not at particu-
larly low asset levels.
Low-cost funds should also be a key part of your
strategy. They have higher returns and tend to even
be less risky because they have a lower hurdle
to overcome.
œ
Group
Risk Quartile
Ast-Wgt 10-yr
Investor Return %
Average 10-yr
Total Return %
10-yr Return
Gap %
Average Overall
Morningstar Risk
U.S. Diversified Funds 1
8.76
7.60
1.15
1.68
2
6.68
7.78
-1.11
2.25
3
7.27
7.40
-0.13
2.58
4
5.25
7.38
-2.13
3.13
Balanced
1
4.32
4.53
-0.22
0.41
2
6.65
5.38
1.26
0.78
3
4.96
5.52
-0.57
0.93
4
5.44
5.52
-0.08
1.34
Intl Equity Funds
1
7.24
6.45
0.79
1.71
2
3.83
5.49
-1.66
2.48
3
4.91
5.55
-0.64
2.95
4
4.10
5.85
-1.75
3.90
Taxable Bond
1
2.53
4.01
-1.48
0.10
2
3.02
4.03
-1.02
0.21
3
4.26
4.84
-0.58
0.34
4
3.78
4.46
-0.68
0.35
Municipal Bond
1
2.09
3.58
-1.49
0.14
2
2.65
3.84
-1.18
0.20
3
2.72
3.67
-0.95
0.19
4
1.76
3.53
-1.77
0.38
All Funds
1
6.56
5.30
1.26
0.84
2
5.88
5.91
-0.04
1.53
3
5.63
5.95
-0.32
1.90
4
4.53
5.84
-1.32
2.36
Risk and Investor Returns
Data through Dec. 31, 2014.