How Do Your Funds Measure Up on Stewardship?

Investment analysts at Morningstar have revamped the way they grade mutual fund companies on “stewardship,” or how well they serve as caretakers of your invested capital.  The new grades help tell you how hard your funds are working for you.

According to Morningstar, stewardship matters.  “Good stewards delivered better results, in the form of better fund performance,” says Morningstar. They focused on carefully managing the funds entrusted to them, rather than directing their attention to peddling new products or exploiting the latest investment fads.

In Morningstar’s new playbook, fund families are measured against several benchmarks, such as fees, manager tenure, and the size of managers’ investments in their own funds, then assigned an “A” to “F” grade.

Very few fund families received a coveted “A” grade for overall stewardship.  Among the larger firms doing so were American Funds,  Dodge & Cox, T. Rowe Price and Vanguard. 

American Funds and Vanguard earned high marks for their across-the-board low fees, compared to peers. Among larger firms, American Funds, Dodge & Cox, Manning & Napier and Franklin Templeton all scored high in manager tenure and long-term retention of investment talent.

Analysts like to see that fund managers “have skin in the game,” meaning substantial amounts invested in the funds they personally manage. Morningstar research shows that managers who have $1 million or more invested in their own funds achieve better performance for you, the shareholder. American Funds, Dodge & Cox, Oakmark and Janus all placed at the top when measuring “skin in the game”; at those firms, above 90% of the assets managed were in funds overseen by managers with over $1 million of their own money at stake.

Tip: Good stewardship can’t guarantee good performance, but it does ensure that your fund manager will treat you and your money with the utmost respect and fairness, something that doesn’t always come easily in today’s financial marketplace.

 

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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