5 Things Investors Can Be Thankful For

Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. The holiday season is upon us. Joining me today to talk about five things that fund investors can be thankful for is Russ Kinnel. Russ is Morningstar's director of manager research and editor of Morningstar FundInvestor.

Nice to see you, Russ.

Russ Kinnel: Glad to see you.

Dziubinski: One of the things that you think investors should be grateful for or thankful for is a stock market that's done remarkably well and isn't rigged.

Kinnel: You know, it's funny. Whenever there's a controversy that comes up, people say, "Oh, the market is rigged." We had high-frequency trading. You hear about various insider trading cases and other things. But you can buy a broad index fund for like 5 basis points now. And if you look at Vanguard Total Stock Market, a $10,000 investment 15 years ago was worth $46,000. So, it doesn't seem rigged to me. It seems like it's done pretty well. For sure, there are many ways you can get ripped off, but the market is not rigged. Stocks are often a good investment.

Dziubinski: Now another reason for fund investors to be thankful is fund fees have continued to decline, right?

Kinnel: That's right. It's partly the continued popularity of index funds, competition as well. The index providers are trying to outdo each other. But even in active, fees have come down. It's really a very steady decline over the last 20 years. So, again, people are getting a pretty good deal. If you compare U.S. fees with those outside the U.S., U.S. investors are getting about the best deal out there. Fees are continuing to come down. And so, another good thing.

Dziubinski: And then, for investors who value diversification, something that they could be thankful for, is that there have been a lot of value managers who have actually stuck with their strategies through thick and thin.

Kinnel: That's right. They are having a really tough stretch for value investors. Yet, a lot of them have stuck to it, and the last, say, trailing 12 months that's actually paid off really nicely as value has mostly beaten growth. So, I think of firms like Dodge & Cox, Oakmark, Hotchkis & Wiley, Causeway, they really stayed to their value discipline. Each of those has a little different value discipline, but I think it's paid off. And we value that diversification, the next time maybe it will be outperforming at a time when growth is actually losing money. Who knows? But diversification is a good thing.

Dziubinski: And then, you also note that fund investors are, in many cases, benefiting from portfolio managers who are continuing to run money when, frankly, they've made a bundle themselves and they could quit their day jobs and don't need to be still managing money, right?

Kinnel: If you step back and think about it, if you run money at a big fund company, you are making a very large amount of money, both in terms of salary and bonus and maybe equity or something like equity. And the managers could retire pretty comfortably often probably in their late 40s. But so many managers you see at Capital Group and Wellington and Fidelity, T. Rowe, they're retiring usually in their early 60s. So, it's really something I'm grateful for. We just had Joel Tillinghast, one of the all-time greats, announce his retirement. And again, this is someone who could have retired a long time ago and still had a great career. We're very fortunate that he stayed at it as long as he did.

Dziubinski: And speaking of Fidelity, you think there is one particular group of investors, those invested in Fidelity Growth Company, that should be really thankful. Why is that?

Kinnel: Well, this happens to be the fund of the moment because you think about large growth has been the best place to be for quite a stretch as FAANG stocks and others have dominated. And this is a fund that's really taken advantage of that under Steve Wymer. So, in this case, you've got a fund that its trailing 15-year annualized return is 17%, growing $10,000 into over $102,000. So, a tremendous return. Obviously, probably we're not going to get that the next 15 years. But you have to give Steve Wymer credit for doing a tremendous job of making the most of this great opportunity.

Dziubinski: Well, Russ, thanks for your time today. Sounds like we do have a lot to be grateful for as investors.

Kinnel: You're welcome.

Dziubinski: And Happy Thanksgiving.

Kinnel: Happy Thanksgiving.

Dziubinski: I'm Susan Dziubinski with Morningstar. Thanks for tuning in.