Morningstar Fund Investor (May 2019)
Russel Kinnel, Director of Manager Research and Editor
Every year, I write about the Fantastic 40—although the number varies slightly each time.
The idea is to focus on the most important factors and let them do the weeding for me.
The goal is a short list of outstanding funds accessible to individual investors.
This isn’t a list for huge pension funds. You can be awfully picky when you have 8,000 funds
to choose from. The criteria have largely been the same, with some minor tweaks over the years.
Here are the tests I used this time:
1) Expense ratio in the cheapest quintile.
2) Manager investment of more than $1 million in the fund.
3) Morningstar Risk rating below the High level.
4) Morningstar Analyst Rating of Bronze or higher.
5) Parent rating of Positive.
6) Returns above the fund’s benchmark over the manager’s tenure for a minimum of five years.
In the case of allocation funds, I used category averages instead because benchmarks are
often pure equity or bond and therefore not a good test.
7) Must be a share class accessible to individual investors.
8) No funds of funds.
Maybe it's just how I perceive this test, but it seems like this list would apply more to new investors or at least to existing investors that are searching out new mutual funds to buy into. It seems a bit counter intuitive to include closed mutual funds in the list, especially when one of the criteria is that there must be a share class accessible to individual investors. If I'm not already an investor in RPMGX, then there is no share class accessible.