Rated Funds That Win Only Half the Battle
Low fees are important, but not enough to get these rated funds a medal.
Study after study has shown that expenses are the most reliable indicator of future mutual fund returns. But even low costs don't guarantee success. Often, low fees are not enough for an actively managed fund to earn a Morningstar Analyst Rating of Gold, Silver, or Bronze. Besides reasonable fees and a solid track record, a fund also has to have a solid, repeatable process and competent, shareholder-focused stewards at the helm. Changes or deficiencies in those fundamental traits can outweigh an attractive price tag. To illustrate, here are five funds whose low fees give them an enormous advantage over their rivals; however, they have Neutral Analyst Ratings because of questions about other critical factors.
The Vanguard name is synonymous with low fees, but that's only half the battle at two of the giant mutual fund family's actively managed quantitative funds. Vanguard Strategic Equity (VSEQX) and Vanguard Growth & Income (VQNPX) are among the cheapest non-index-fund options in their respective mid-blend and large-blend Morningstar Categories. Despite that advantage, they are rated Neutral because they have yet to impress over a full market cycle.
Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.