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12 Intriguing Insights on Mutual Funds

Below the radar, some funds got burned by American Airlines, while another fund is dumping Hong Kong real estate, and other fund managers are limited in the number of times they can go home.

Russel Kinnel, 04/16/2012

In the past my colleagues Karen Dolan and Kunal Kapoor have shared some "shocking" fund statistics with you. Today, I thought I'd share some pretty darn interesting insights from our fund analyses. No, they aren't quite shocking, but still intriguing is good, too.  

We're writing longer fund analyses that go into greater depth so that you can learn more about your fund and have a greater insight into how we came up with the Morningstar Analyst Ratings. But there's so darn much great info out there that I bet you've missed some of it. So, here are just some of the good bits you may have missed.

Third Avenue Value's TAVFX new lead manager is paring risk at the fund. Ian Lapey aims to build up cash to around 10% of assets and trim the fund's huge weighting in Hong Kong real estate firms from its current 40% level. He says he likes the real estate names but doesn't want such a huge weighting.

Dan Fuss and Kathleen Gaffney are raising defenses against rising interest rates and a falling dollar at the same time. Though you might expect one to counter the other, Loomis Sayles Bond LSBRX now has dialed down interest-rate sensitivity through high-yield converts and stocks. At the same time, they have boosted foreign-currency exposure to 34% of assets.

American Airlines stock had long been dumped from nearly every equity fund out there before it hit Chapter 11. But its bankruptcy filing hit muni funds harder than stock funds. Goldman Sachs High Yield Muni GHYAX had 4% in American Airlines bonds, and that caused it to lose 1.3% on Nov. 29, when AMR filed. Oppenheimer Rochester National Muni ORNAX also lost 1.3% that day because of a bet on American.

Despite its fame for growth investing, Fidelity has at least two Graham and Doddians under its roof. New Fidelity Overseas FOSFX manager Vincent Montemaggiore is a Columbia graduate influenced by the great value investors, and Chuck Myers runs Fidelity Small Cap Value FCPVX in a style influenced by Benjamin Graham and Warren Buffett.

American Funds SMALLCAP World SMCWX has 13 managers plus a team of analysts running a 14th sleeve. That's got to be the most sleeves from just one advisor.

Templeton managers based in the Bahamas can visit only their home countries such as the United States for limited amounts of time per year (generally 30-60 days), or they get hit with tax issues. That would seem to put them at a disadvantage versus other fund companies running international and global stock funds as their employees can travel much more freely. Because most of their managers and analysts are American and Canadian, I would imagine this is the greatest handicap for their global funds.

Russel Kinnel is Morningstar's director of mutual fund research. He is also the editor of Morningstar FundInvestor, a monthly newsletter dedicated to helping investors pick great mutual funds, build winning portfolios, and monitor their funds for greater gains. (Click here for a free issue). Mr. Kinnel would like to hear from readers, but no financial-planning questions, please. Follow Russel on Twitter: @russkinnel.
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