250 / 772
8
Fewer than a dozen funds deemed Fantastic in
2014
were not included in the
2015
list. Two were
dinged for their expense ratios, two missed the
mark following manager changes, and four funds
were cut after long-term performance fell off.
Are these deteriorations significant enough to warrant
replacing the fund in one’s portfolio? In all but one
case, the funds still earn Morningstar Analyst Ratings
of Gold, Silver, or Bronze, signaling our conviction
that they will outperform going forward. One fund
was downgraded to Bronze from Silver, and
another fell one notch to Neutral, suggesting the
funds have significantly steeper climbs.
Less-Competitive on Price
Two funds previously deemed Fantastic were dropped
because their expense ratios went up. While a
basis point or two may disqualify a fund from the
Fantastic list, the fees on these funds are by
no means alarming.
American Funds Capital Income Builder
CAIBX
This world-allocation fund’s expense ratio has moved
around slightly in recent years, from as low as
0
.
55%
heading into the financial crisis to a high of
0
.
66%
in
2009
. The fund had been treading in the
middle of that range in recent years, and in
2014
, the
fund’s levy ticked up
1
basis point to
0
.
62%
.
Even with that
1
-basis-point move, the fund is still
a relatively good deal. It retains its Analyst
Rating of Silver—including a Positive Price Pillar
rating. It is the largest offering in the world-
allocation Morningstar Category by a long shot,
and its experienced management team recently split
the fund’s assets between two internal, yet
independent, investment teams to better steer the
fund’s equity stake. The fund’s performance has
been strong, thanks in part to a higher equity stake
relative to peers.
Fidelity Capital Appreciation
FDCAX
This fund also missed the Fantastic list because of
a higher expense ratio, but the change in cost is
related to the fund’s strong past performance. Fidelity
is one of a few large asset managers that has
performance fees on many of its funds, where the
expense ratio ticks up after a period of outperfomance
or goes down if the fund has trailed its benchmark.
Morningstar supports such fulcrum fees, so long as
the fee swings are modest.
In the case of this large-growth fund, the expense
ratio goes up
2
basis points for every percentage
point the fund’s annual return exceeds its benchmark,
the Russell
1000
Growth Index. In
2013
, the fund
outpaced that index by
2
.
47
percentage points,
upping the expense ratio by
4
basis points to
0
.
81%
.
This increase moved the fund’s expenses beyond
the category’s cheapest quintile, but the fund still
earns a Positive Price Pillar rating and the offering
overall is rated Bronze. Expect expenses to continue
to bounce around: Manager Fergus Shiel’s bold
bets are off at times, but long-term performance
is impressive.
Manager Changes Put Funds in Flux
Fund manager departures can be unsettling, especially
if the new manager on the fund is untested. Two
funds previously on the Fantastic list passed the baton
in
2014
to a manager with less than five years of
experience on the fund.
T. Rowe Price Equity Income
PRFDX
Brian Rogers, skipper of this large-value fund for
30
years, is retiring in October, a move well-forecast
in typical T. Rowe fashion. John Linehan, the firm’s
former head of U.S. equities, will take over the
low-turnover portfolio. Linehan is an experienced
manager, having comanaged
T. Rowe Price
Institutional Large-Cap Value
TILCX
with Rogers
since
2004
.
Linehan’s newcomer status to this particular strategy,
however, eliminates the fund from the Fantastic
Who Fell Out of the Fantastic 50?
Morningstar Research
|
Laura Pavlenko Lutton