Looking to make up time after opening keynote speaker Bill Gross went over his allotted period, Morningstar's Fund Research Roundtable, hosted by CNBC's Tyler Mathisen, was a “lighting round” of commentary and debate about current events that affect advisors, the fund industry and the economy as a whole.
“You don’t interrupt Bob Dylan when he’s singing,” Mathisen explained before introducing Morningstar senior staff members, including Don Phillips, Morningstar’s president of fund research; Scott Burns, director of ETF analysis; Russel Kinnel, director of mutual fund research; Laura Lutton, editorial director of mutual fund analysis; and, Eric Jacobson, also an editorial director of mutual fund analysis.
Mathisen began by asking Jacobson about his thoughts on the overall economic picture for investors, as detailed by Gross in the previous session.
“I think there is consensus on the big picture, meaning there is a strong trend to look outside the United States,” Jacobson said. “There is also a trend towards so-called ‘non-core’ or ‘unconstrained’ types of funds, which really means stable-value funds and the like.”
Phillips took a moment to praise Gross, who he said is a “voice for the small advisor; he is someone who is going to Washington and saying, ‘this is unacceptable.’ He preaches that we at the point where it’s like 'A Christmas Carol' and we can still wake up like it’s a bad dream. But that point is rapidly disappearing.”
Mathisen once again returned to Jacobson, and asked if money could still be made in what he called, “garden variety” bond funds.
Jacobson responded by saying that traditional bond funds are not as relevant to investors as they once were, and countries where investors would once never have considered placing their so-called “safe money”, meaning their fixed investments, must now be looked at.
Burns broke in to say that if the audience thought Bill Gross was pessimistic, it is nothing compared with European fund managers.
“During our conference in Britain, over and over we heard that the United States, from an economic standpoint, is done,” Burns said. “That our goose is cooked. It reminded me of the adage that if you owe the bank $10,000 that’s bad for you, but if you owe the bank $10 million that’s bad for the bank.
“We have the Chinese right where we want them,” he added to laughter from the audience. “Seriously, they have high wage inflation and all sorts of other economic issues they’re dealing with. So it’s a complicated issue, and one which leads me to say that we
shouldn’t buy into the narrative that the United States is done.”
Kinnel was then asked about certain factors that predict success in the mutual fund arena, and whether the factors hold up across all asset classes.
“What we found is that manager performance, the ‘star’ rating system and expenses are much more predictive of fund performance if they are used in conjunction with one another as opposed to standing alone,” Kinnel, Morningstar’s Fund Spy, responded.
Phillips then added that the star rating usually means expenses are lower and performance is better. It might not necessarily be a predictive factor moving forward, but it’s a good starting point for advisors and the research they perform.
Lutton, who in large part is responsible for communicating the research firm’s stewardship grades awarded to mutual fund families, said corporate culture is one of the most determinant factors in the grades awarded to companies.
“Through our research, we’ve found good stewardship grades correlate to higher assets under management and better performance, so there is some predictive value in them,” Lutton said.
Mathisen asked Phillips if he thought investors were smarter today than in the 1980s, given the availability of information.
Phillips responded by saying that today we have a clean, well-light playing field. Investors are not necessarily smarter, it’s just that fees are lower and transparency is higher. That is in part due to advisors, the financial press and all other interested parties.
“A recent study we produced found that the transparency, regulatory oversight and low fees contributed to the fact the United States is still the most hospitable environment in which to invest,” he said.