Funds With High Fee Hurdles
These funds are Morningstar Medalists despite their relatively high expenses.
Expenses are one of the easiest factors for mutual fund investors to control. You can’t be certain how a fund is going to perform, but you can know exactly how much you’re paying for it.
Low fees help a fund’s Morningstar Analyst Rating, because they confer an advantage right off the bat over more-expensive counterparts. However, it’s possible for a fund to have strong people and processes despite high fees. Below are four funds that earn ratings of Bronze or Silver, even though each has a Negative Price Pillar rating. They have Positive Process, People, and Performance ratings, but their high price tags pose a higher hurdle to future outperformance.
Tweedy, Browne Global Value (TBGVX)
This fund earns a Bronze rating, despite a 1.36% expense ratio that puts it in the priciest 10% of foreign large-value funds. An experienced seven-person management team runs this fund, which is in the foreign large-value Morningstar Category but doesn’t fit so neatly into traditional boxes. Ranging around the world and across the entire market-cap spectrum, the managers seek to buy quality stocks with strong franchises at cheap prices and hold them for the long term. It has an outstanding long-term record, with five-, 10-, and 15-year returns that rank in the category’s top 2% as of mid-July 2019, with far less volatility than its average peer.
Baron Growth (BGRFX)
This fund is also more expensive than its average peer, with a 1.29% expense ratio, and that’s one of the major factors limiting its rating to Bronze. Veteran stock-picker Ron Baron and comanager Neal Rosenberg like small companies with strong secular growth prospects and emerging competitive advantages, generally avoiding areas that Baron doesn’t feel comfortable in, such as biotech. They tend to hold on to winners, so the portfolio’s average market cap has risen over time, moving it from the small-growth to mid-cap growth category in 2011. This approach has worked well over time, as the fund has beaten its mid-cap growth peers over the trailing 10 and 15 years.
PIMCO Short-Term (PSHAX)
The lone bond fund on this list, this PIMCO offering has disappointingly high expenses, especially given its huge $17 billion asset base. Even so, its other attractive features are enough to earn it a Silver rating. The fund is designed to protect investors’ capital while providing slightly better total returns than cash. Manager Jerome Schneider and his impressive team of analysts use a wide variety of tools to achieve that goal, including interest-rate, yield-curve, currency, country, and sector decisions based on a combination of macroeconomic forecasting and bottom-up analysis. They’ve done a fine job, too, with long-term total returns that have beaten the ultrashort bond category since Schneider took over in 2011.
AMG Yacktman Focused (YAFFX)
This Silver-rated fund’s 1.27% prospectus net expense ratio is far higher than its average peer’s, and even more expensive than Gold-rated sibling AMG Yacktman YACKX, which costs only 0.75%. This fund takes an index-agnostic value approach, often straddling the border between large-value and large-blend. (Earlier this year it moved back to the large-value category from large-blend, where it had been since 2012.) Managers Stephen Yacktman and Jason Subotky are willing to keep a big chunk of the fund in cash when they get wary of market valuations, and the portfolio’s current hefty cash stake was a big reason for the fund’s topnotch relative performance in the tough market of 2018.
David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.