(PUB) Investing 2015

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9 Morningstar FundInvestor March 2015
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
Name
Stewardship
Grade
Firm Manager-
Retention
Rate 5-Year %
Firm Asset-Wgtd
Manager Tenure
(Longest, Years)
Firm Risk-
Adjusted Success
Rate 10-Year
% Assets
Manager
Inv >$1M
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
Key Measures of Stewardship
Data through Feb. 28, 2015.