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Rekenthaler Report

Making Sense of Messy Funds

The task is becoming easier, thanks to a Morningstar enhancement.


Clear as Mud
The mutual fund industry hasn’t led investment innovation, but it hasn’t boycotted modernity, either. Standard futures and options contracts, once rare among mutual funds, have become commonplace. In recent years, they increasingly have been joined by custom contracts--exotica such as total-return and credit-default swaps.

Understanding such portfolios is a difficult task. Interpreting a standard stock or bond fund is straightforward. Annual reports group securities by geography, industry sector, and issuer. Determining that a fund is, for example, mostly invested in U.S. stocks with a small-company and technology focus requires no special insights. Not so with a fund that is stuffed with derivatives.

John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.