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Is It Good to Be King? How the Largest Fund Families Stack Up

Morningstar’s semiannual report takes a closer look at the largest fund families in the United States

Bridget Hughes, Morningstar Research Services LLC

 

Fund families that score highest in the semiannual Morningstar Fund Family 150 report tend to keep their crown. That is, while firms in the middle of our list are more apt to move up and down in the rankings and can move dramatically so at times, those at the top have generally stayed put. That characteristic has proved itself again in the August 2019 release of the Fund Family 150 report, in which the following families earned the highest rankings—again: 

  1. Dodge & Cox 
  2. Baird 
  3. American Funds 
  4. Primecap 
  5. Jensen 

These fund families all earned the same scorecard ranks as they did in our previous report and continued to achieve Morningstar Analyst Ratings™ of Positive. 

Analysts’ long view encourages stability 

To a large extent, this lack of movement reflects the long-term nature of our strategy and parent research. Morningstar analysts consider, for example, performance over full market cycles and fund behavior in different types of markets rather than one- or three-year returns or even five-year results alone. 

This long-term idea is constant when we assess the largest fund families. Analysts look for established track records of behavior that support a company’s stewardship profile.  

We are focused primarily on an asset manager’s culture, considering how both the firm’s investment and commercial cultures translate into an investor’s experience. Firms with strong investment cultures have demonstrated they can attract, develop, and retain investment talent; they are deliberate about succession planning. Those with admirable commercial cultures are thoughtful about their product offering and careful about capacity management, all while offering investors value for the dollars entrusted to them and sharing economies of scale with their customers. 

The real trick, though, is sustaining these practices throughout good times and bad (and asset managers do have bad times). While things can improve or deteriorate more quickly on a single fund, these trends tend to take longer to play out at the firm level and inflection points can be tough to recognize. 

A look at the performance of the largest fund families 

The report’s analysis can help evaluate which firms are leading the pack at a certain point in time. As shown on the chart below, for example, Vanguard, BlackRock/iShares, Fidelity, and Schwab have taken in the lion’s share of investor flows through second-quarter 2019. That those firms top the flows chart reflects continued investor preference for passive strategies. 

We found that, during this period, some of those same firms also have the most Morningstar Medalists, or Morningstar Analyst Ratings™ of Gold, Silver, and Bronze (shown on the chart below). As this is an absolute ranking, some of that is explained by the large number of funds offered by these large firms, but it also indicates analysts’ confidence in those investment managers.

Even so, just because firms at the top of our list stay there doesn’t mean they can be given a free pass. It’s still important to look carefully at these trusted, winning firms with the same level of rigor you would any other company—especially in the investment-management industry where the competition is always changing, as is the environment in which they operate.

For instance, in addition to the continued demand for passive funds, the SEC’s new Regulation Best Interest ruling has led distribution outlets to continue the work they started in order to prepare for the now-dead fiduciary rule; those efforts have tended to shrink the number of funds offered by broker/dealers. To be sure, no firm’s reign is permanent nor even entirely secure. 

The Fund Family 150 can help make sense of these changes. While big, quick moves are infrequent among the top-ranking fund families, even the small ones can sometimes be telling. Consider Matthews, whose scorecard rank of 13 was down 3 notches from our previous report, and Dimensional Fund Advisors, whose scorecard rank of 16 was down 2 notches from our previous report. 

And beyond the ranking, each firm’s individual page can give you clues to what’s going on at these firms. Sometimes, a firm’s data points will provide comfort, but other times it may be necessary to follow up and monitor the situation more closely. 

For more information on the largest fund families and how we’re holding some of the top firms’ feet to the fire, including Dodge & Cox, Matthews, and Dimensional, join our webinar on Sept. 10.  

To learn more about these considerations and the key trends in the competitive landscape, download our paper.

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The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. The Morningstar Analyst Rating should not be used as the sole basis in evaluating a fund. Morningstar Analyst Ratings are based on Morningstar's current expectations about future events; therefore, in no way does Morningstar represent ratings as a guarantee nor should they be viewed by an investor as such. Morningstar Analyst Ratings involve unknown risk and uncertainties, which may cause Morningstar's expectations not to occur or to differ significantly from what we expected.

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