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Morningstar – a mutual fund investor’s best friend

Daily Staff Report

Richard LothMorningstar, Inc. is a leading investment research firm, based in Chicago, which has been analyzing and rating mutual funds since 1985. In recent years, it has also expanded its research into stocks. For those of you who are unfamiliar with Morningstar, in the mutual fund field, metaphorically speaking, its accomplishments equal those of Lance Armstrong in the cycling world. By the way, let’s hope he wins number seven later this month in France.The well-known and respected Morningstar mutual fund report is the company’s flagship product. There are more than 7,000 stock, bond and money-market mutual funds to choose from. Morningstar works this number down to covering 1,600 and produces, among other research items, a single-page, comprehensive Fund Report on each of these. It’s these reports that you’ll have access to through our libraries in Vail and Avon. In my mind, if you have a fund that’s not in this universe, you may want to reconsider why you’re holding it.For individual investors, a Morningstar fund report represents one of the most reliable, easiest ways to make a mutual fund selection. The information is comprehensive and infinitely more readable than a fund prospectus or annual report. I don’t have enough space here to go into all the helpful data a Morningstar fund report provides, but if I had to single out one feature, it would be its selection of the “best of the bunch,” formerly referred to as an “analyst pick.” If a fund qualifies for this designation, it appears at the top of a Morningstar report.How does a fund make this list? 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 based on: long-term, above-average total return performance; quality of management; the performance of the fund during the current manager’s or management team’s tenure; 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 one can reasonably expect to be long-term portfolio holdings. Since these funds are the cream of the crop, why choose anything else?How to locate Morningstar picksUsing Morningstar’s Web site on 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 – of $35 – the 2005 edition of Morningstar’s “Funds 500” 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 140 Morningstar analyst picks as an easy and reliable technique for making smart investment decisions on mutual funds. I even take this process one step further by maintaining a short-list of some 20 selections from this elite group. 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 and an independent registered investment adviser. Loth can be reached at 827-5591 or mentorinvesting@comcast.net.Vail, Colorado


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