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Investors should listen to this company’s advice

Richard Loth

For individual investors, a “Morngingstar pick” represents one of the most reliable, easy ways to make a mutual fund selection. Before explaining how this incredibly simple, yet valuable, investing tool works, let’s get better acquainted with Morningstar, Inc. If you invest in mutual funds and are not familiar with what Morningstar can do for you, you’re missing the boat – big time.The company is a leading investment research firm, based in Chicago, that has been analyzing and rating mutual funds since 1985. In recent years, it has also expanded its research into stocks. Metaphorically speaking, in the mutual fund field, Morningstar’s reputation and accomplishments equal those of Lance Armstrong in the cycling world.If you go to the company’s Web site, http://www.morningstar.com, up in the top right corner you’ll see a “Products” tab. Click on this to get to “Store,” and then “Fund Products,” to get descriptions of their mutual fund newsletter, annual mutual fund sourcebook, guidebook to fund investing and fund reports. For your purposes I’m going to focus my remarks on the well-known and respected Morningstar Fund Report.Go to the libraryThe Vail and Avon libraries subscribe to Morningstar’s Fund Report service, which permits you to save a bundle of money and have access – in print form and online – to analytical reports on 1,600 mutual funds covered by Morningstar. If your fund is not in this universe, you might want to reconsider the appropriateness of keeping it in your portfolio. Proprietary funds of retirement plan providers, which are not publicly traded, are not covered.There are almost 7,000 stock, bond, and money-market mutual funds. Morningstar winnows this number down to 1,600 and produces, among other research items, a single-page, comprehensive fund report on each of these. You will have access to the information on these funds through our libraries in Vail and Avon. A Morningstar analyst pick, simply stated, is the best of the 1,600 funds it covers. At present, Morningstar has 140 picks, approximately 100 stock funds and 40 bond funds. These are selected for their long-term, above-average total return performance; quality of management; the tenure of managers leading the company during high performance periods; low portfolio turnover; low operating expenses and fees; a reasonable size for the fund’s investment objective; and favorable risk-return characteristics. These funds are high quality, consistent performers that you can reasonably expect to be long-term portfolio holdings. Because these funds are the cream of the crop, why choose anything else?Smart decisionsLogging onto Morningstar’s Web site from the computers at the Vail and Avon libraries, which have Morningstar’s Premium Membership privileges, you can click on the “Funds” tab at the top of the page and then scroll down to a section labeled “Fund Analyst Picks by Category.” Another approach is to purchase, for $35, Morningstar’s “Funds 500” annual mutual fund sourcebook, which is available each year by mid-to-late February. This book includes 500 selected Morningstar fund reports, which, if they are a pick, are so marked. A special section in the front of the book conveniently lists all the Morningstar picks as of the previous year’s end.I strongly recommend using the Morningstar picks as an easy and reliable technique for making smart investment decisions on mutual funds. I even take this process one step farther by maintaining a short-list of 24 fund selections – 21 of which are Morningstar picks. If you wish to receive a copy of this information, call or e-mail me your request as per the contact information provided below.The Investing Wisely column is written by Richard Loth, managing principal of Mentor Investing, an independent registered investment adviser. Loth can be reached at 827-5591 or mentorinvesting@comcast.net.


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