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The funds in Morningstar’s
401
(k) are chosen for the
long haul. Some of our employees may be here
30
years, and they might hold onto their
401
(k) for
20
years after that. So, we look for funds that should
stand the test of time. In fact, more than half have
been in the plan for more than
10
years. Two of
them even predate my start date at Morningstar
20
years ago.
We want funds that fit together well, though we do
build in some redundancy in order to let employees
make their own choices. It isn’t designed for employ-
ees to own one of everything.
We look for the same things any long-term investor
should: stable management, a sound strategy, low
expense ratios, and strong stewardship. We also seek
out funds that tend to be on the less risky side of their
category. Even though a
401
(k) is a long-term invest-
ment, experience shows that investors in
401
(k)s have
a hard time making the most of high-risk funds. They
buy after the funds have gone up and sell at just the
wrong time. And, of course, our
401
(k) funds have to
be Morningstar Medalists.
You’ll notice that our fund selections are cheaper and
from a wider array of fund companies than the typical
plan. That’s because Morningstar accepts most
of the administrative costs rather than passing them
along to employees. Typically
401
(k) providers will
charge the company or its employees less if they
use funds from the plan provider and/or those funds
charge
12
b-
1
fees that the provider collects as
payment. So, we have some institutional funds you
might not have access to, as well as some funds
closed to new investors. However, many have near-
equivalents that you can buy instead. I will list
replacement suggestions if you want to find the
best substitute.
I haven’t listed any target-date funds. We have
customized target-date funds designed specifically for
Morningstar employees by our Morningstar Investor
Services division. They also provide an individualized
service that chooses funds for the lineup based on
each individual’s situation because, even for people at
Morningstar, a
23
-fund lineup can be daunting.
So, let’s take a look:
American Funds New World R5
RNWFX
This is a fund designed to make emerging markets
more palatable to the average fund investor. It has
half emerging-markets equities and half developed-
markets stocks. The premise is that the source of
revenues matters more than the location of the stock
exchange listing. Thus, the fund will buy companies
domiciled in developed markets that still derive much
of their business from emerging markets. It makes
sense to me, and you get the added benefit of greater
rule of law in most developed markets. Thus, the
fund owns some companies from both groups as well
as some emerging-markets debt. The effect mutes
some of the extremes of emerging markets, and that
makes it a very user-friendly fund. But perhaps more
important is that American has great managers and
analysts, and it charges just
0
.
69%
for the R
5
shares.
The retail A shares’ ticker is
NEWFX
.
The Funds in
Morningstar’s 401(k)
Fund Reports
5
Harbor Mid Cap Value
Janus Balanced
T. Rowe Price Real Estate
Morningstar Research
8
How Flows Affect Your Fund
The Contrarian
10
Bank-Loan Funds Worry Me
Red Flags
11
Funds Have 99 Problems, but
Greece Isn’t One
Market Overview
12
Leaders & Laggards
13
Manager Changes and News
14
Portfolio Matters
16
A T. Rowe Price Bucket Portfolio
Tracking Morningstar
18
Analyst Ratings
Income Strategist
20
The Other Debt Crisis
Changes to the 500
22
FundInvestor 500 Spotlight
23
Follow Russ on Twitter
@RussKinnel
RusselKinnel, Director of
ManagerResearch and Editor
FundInvestor
August 2015
Vol. 23 No.12
Research and recommendatio s for the s riou fund investo
SM
Continued on Page 2