At the first day, June 23, of the annual Morningstar Investment Conference, a group of Morningstar analysts called for more disclosure on actual mutual fund costs and their holdings. Don Phillips, president of fund research, called for “mutual fund accounting to be cleaned up,” arguing that such an accounting would be a “statement of where our money goes. And it is our money!”
Phillips went on to say that like any business, advisors and mutual fund end investors want to know “What’s the cost of goods sold? What’s the cost of distribution? What’s the overhead?” but that under the current state of mutual fund accounting, “it’s now near impossible to do that,” citing as exhibit one an item like 12b-1 fees, which by right should be considered a distribution cost but isn’t broken down that way.
He gave a wry defense of the Morningstar star-ranking system for mutual funds, which is just one of the innovations for which he is personally responsible. The stars, he said, are “a grade on past performance; it’s an achievement test, not an aptitude test.”
Jeffrey Gundlach, founder of DoubleLine Capital, LP and former CIO of Trust Company of the West (TCW) also spoke on June 23. He gave the keynote address at the 2007 Morningstar confab, warning early that the mortgage securities market was “a total, unmitigated disaster.” That alarm was sadly true and three years later, Gundlach warns “deflationary pressure is undeniable.”
Gundlach is also very conscious about consumer and government debt, especially unfunded liabilities in Medicare and Social Security–”in 2009 [there was] $62.3 trillion in…promises to pay against a $14 trillion economy.” Further, that’s up “$36 trillion over the past seven or eight years” versus a total cumulative economy of $104 trillion over that same time.
He mentioned that the best performing asset class recently has been long-term U.S. Treasury bonds. They are “a reasonable investment right now.”
Gundlach spoke of a “new world scenarios” strategy: buying select residential mortgage backed securities (RMBS) that offer inflation protection at a steep discount to provide an expected double-digit return, combined with low-risk long U.S. Treasury bonds, which offer deflation protection.