445 / 772
11
Morningstar FundInvestor
October
2015
We don’t have any really pricey funds in the
Morningstar
500
, but there are some with above-
average fees. I looked for funds with above-
average expense ratios and either a Morningstar
Analyst Rating of Neutral or no rating. They clearly
have some appeal or I wouldn’t have them in the
Morningstar
500
, but the odds aren’t so great with
these funds. A choosy investor can do better.
Eventide Gilead
ETGLX
This is the best performer on the list and, therefore,
probably the most tempting. But it charges an
expense ratio of
1
.
45%
, and its high turnover rate
likely means it racks up above-average brokerage
costs. Manager Finny Kuruvilla also faces the chal-
lenge of managing a much larger fund than he
had been running. The fund has had inflows of
$1
.
1
billion, which drove assets up to
$1
.
8
billion. The
strategy combines Christian screens and an aggres-
sive-growth strategy. It will be interesting to see
if the fund’s success is sustainable, but its fees will
make that a real challenge.
Royce Micro-Cap
RYOTX
This fund charges
1
.
48%
in expenses—that’s pretty
high for a small-blend fund, though not so extreme
compared with others that focus on micro-caps. Micro-
caps don’t cost more to research, but funds that
focus on them generally have to close at a lower asset
base than other small-cap funds, so there are fewer
economies of scale to share. We don’t rate the fund,
but its poor five- and
10
-year records don’t make it a
compelling option. Its returns lag
DFA US Micro Cap
DFSCX
by a wide margin, so we can’t blame micro-
caps, either. Manager Jennifer Taylor has been at the
helm for nine years, and she at least deserves credit
for investing more than
$1
million of her own money
in the fund.
Marsico Growth
MGRIX
Is Tom Marsico worth paying a premium? No; he has
a strong
30
-year record, but it’s been a long time
since he consistently outperformed. The fund charges
1
.
37%
—that’s more than double
Primecap Odyssey
Growth
’s
POGRX
expense ratio. A sharp drop in firm
assets under management and some key departures
add to Marsico’s challenges. Once again, this is a
fund with some appeal, but not enough to make it a
good bet.
Thornburg Value
TVAFX
This fund is on the rebound after a disastrous stretch.
However, poor performance led to a big exodus
and that in turn led to higher costs. The fund charges
1
.
37%
, which is fairly pricey for a large-cap fund. The
fund has had quite a bit of manager turnover—two
have left in the past five years, and Rob MacDonald
joined Connor Browne in February
2015
. Browne is
fairly seasoned, but this is more or less MacDonald’s
first go at management outside of a short stint at
another fund. It’s nice to see the fund outperform
nearly all its peers this year thanks to
GOOG
,
Mondelez
MDLZ
, and
Gilead Sciences
GILD
, but
we need more than a good nine months to recom-
mend the fund.
Gabelli Asset
GABAX
If only you could tap Mario Gabelli the portfolio
manager without having to pay Mario Gabelli the
CEO
.
Gabelli is an outstanding investor focused on cash
flow and stable franchises. However, he is one of the
highest-paid
CEO
s in the fund industry despite
running a very small firm. So, that means high fees
to the tune of
1
.
35%
. In addition, Gabelli hasn’t
done a good job of keeping good investment profes-
sionals around him, so this unrated fund has quite
a bit of key-man risk. That’s industry jargon that means
there could be a big drop in talent should the
manager step aside.
K
These Funds Are Not Worth the Price
Red Flags
|
Russel Kinnel
What is Red Flags?
Red Flags is designed to alert
you to funds’ hidden risks. Such
risks can take many forms,
including asset bloat, the
departure of a solid manager, or
a focus on an overhyped asset
class. Not every fund featured
in Red Flags is a sell, and in fact,
some are good long-term
holdings. But investors should
be prepared for a potentially
bumpier ride in the near future.