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Morningstar FundInvestor
October 2
016
Take-Aways
Needless to say, expense ratios are the place to start
for mutual funds. We highlight funds whose expense
ratios are in the cheapest quintile with a dark-blue
bolding in the fund data pages. Look for funds with
strong managers, good strategies, good stewardship,
and good performance over the manager’s entire
tenure, too. You want to understand past performance,
but don’t read too much into recent returns.
Cheap Funds in a Slump
If you are looking for some contrarian bets in keeping
with the findings of this study, I’ve pulled the
Morningstar
500
funds that have a Morningstar
Medalist rating, expenses ratios in the cheapest
quartile of their category, and bottom-quartile five-
year returns. They are ranked in order of fee
ranking relative to peers.
Vanguard FTSE All-World ex-US Sm Cap Idx
VFSVX
This fund is super cheap, with an expense ratio of
0
.
31%
, but it looks like a dog because of emerging
markets. The fund tracks an index with
23%
in
emerging markets, but the typical foreign small/mid-
blend fund only has
4%
there.
Vanguard Short-Term Tax-Exempt
VWSTX
This Silver-rated fund charges just
0
.
20%
, and its
underperformance is purely due to its short duration.
DFA Emerging Markets Value
DFEVX
This fund’s value tilt has held it back, but its
0
.
56%
expense ratio may pull it ahead when its style is back
in favor.
FPA New Income
FPNIX
Tom Atteberry is very cautious, and he consistently
has less interest-rate risk and less credit risk than
his peers, so this is another one that will lag in rallies.
It charges a modest
0
.
58%
.
Perkins Mid Cap Value
JMCVX
This fund’s slump owes to caution, but its longer-term
record is strong and
0
.
59%
is a great expense ratio.
An emphasis on cheap but lower-yielding stocks has
put the fund distinctly out of favor.
K
Municipal Bond
Expense
Quartile
Avg Exp
Ratio (%)
5-Yr Return
Quartile
Avg 5-Yr
Return (%)
Funds With
5-Yr Return
Avg Subsequent
10-Yr Rating
Avg Subsequent
10-Yr Return (%)
10-Yr Success
Ratio
1
0.59
4
3.53
26
2.54
3.42
19.23
3
4.27
69
3.07
3.71
39.13
2
4.79
120
3.52
4.13
55.00
1
5.47
188
3.79
4.23
59.57
2
0.85
4
3.67
45
2.41
3.61
17.78
3
4.44
128
2.78
3.90
25.00
2
4.85
122
2.99
4.06
40.16
1
5.37
120
3.11
4.09
49.17
3
1.29
4
3.78
127
1.98
3.51
9.45
3
4.38
124
2.27
3.57
12.10
2
4.66
99
2.38
3.64
22.22
1
5.34
41
2.59
3.45
31.71
4
1.67
4
3.71
207
1.67
3.22
1.93
3
4.36
85
1.97
3.22
2.35
2
4.91
35
1.73
2.95
0.00
1
6.10
21
1.43
2.99
0.00
All Mutual Funds
Expense
Quartile
Avg Exp
Ratio (%)
5-Yr Return
Quartile
Avg 5-Yr
Return (%)
Funds With
5-Yr Return
Avg Subsequent
10-Yr Rating
Avg Subsequent
10-Yr Return (%)
10-Yr Success
Ratio
1
0.70
4
0.18
302
3.17
5.58
33.77
3
2.71
602
3.19
5.65
41.20
2
4.62
863
3.30
5.43
48.67
1
7.69
919
3.40
5.38
57.78
2
1.07
4
0.44
476
2.92
5.20
22.48
3
3.39
661
2.83
4.93
28.29
2
4.67
726
2.92
5.22
37.47
1
7.74
780
3.00
5.32
43.46
3
1.48
4
0.98
686
2.49
4.50
16.91
3
3.10
643
2.60
4.64
19.60
2
4.45
554
2.75
4.82
27.98
1
7.90
480
2.73
4.85
32.50
4
2.06
4
0.41
1111
2.28
4.08
8.37
3
2.92
624
2.53
4.48
12.98
2
4.56
398
2.65
4.88
19.10
1
8.02
320
2.21
4.37
15.00
Taxable Bond (cont’d)
Expense
Quartile
Avg Exp
Ratio (%)
5-Yr Return
Quartile
Avg 5-Yr
Return (%)
Funds With
5-Yr Return
Avg Subsequent
10-Yr Rating
Avg Subsequent
10-Yr Return (%)
10-Yr Success
Ratio
3
1.22
4
4.61
126
2.37
3.86
17.46
3
5.26
118
2.64
3.95
25.42
2
5.85
101
2.81
4.09
37.62
1
7.26
82
2.93
4.35
39.02
4
1.77
4
3.81
216
2.00
3.21
9.26
3
5.67
98
2.62
3.98
27.55
2
6.65
56
2.56
4.22
12.50
1
8.08
45
1.83
3.77
13.33
U.S. Open-End Mutual Funds (cont’d)