Investment Strategy
We seek to pick winning funds with superior management and quantitative characteristics linked to strong performance. Our quantitative research uses the most comprehensive mutual fund database in the world to determine the best strategies for long-term investing success. We then supplement those studies with extensive qualitative research of portfolio managers, analysts, and traders through onsite visits and follow-up phone calls.
About the Editor
Russel Kinnel is director of manager research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors. He also writes the Fund Spy column for, the company's investment Web site.

Since joining the company in 1994, Kinnel has covered the Fidelity, Janus, T. Rowe Price, and Vanguard mutual fund families. He helped develop the new Morningstar Rating for funds and the new Morningstar Style Box methodology. He also is co-author of the company's first book, The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success, which was published in January 2003.

Oct 26, 2016
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About Russel Russ' Photo
Russel Kinnel,
Director of Manager Research and Editor, Morningstar FundInvestor
Russel Kinnel is director of manager research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors.
Featured Posts
New Ratings and Bonus Report

We have new ratings on two Morningstar 500 funds.

T. Rowe Price Growth & Income PRGIX received its first-ever rating. Here is Katie Reichart’s report:

T. Rowe Price Growth & Income strikes a good balance. The fund had a manager change in June 2015, but Jeff Rottinghaus has successfully used the same strategy at T. Rowe Price U.S. Large-Cap Core TRULX since 2009. Coupled with low fees and strong analytical resources, the fund earns a Morningstar Analyst Rating of Bronze.

The screening process itself is simplistic. Rottinghaus uses the 200-275 stocks in analyst-run fund T. Rowe Price Capital Opportunity PRCOX as a starting point, narrowing down the list to around 50 stocks to focus on the analysts' best ideas. He emphasizes companies with good business models and management and considers industry dynamics and valuation, though the latter is not always front and center. He is willing to hold promising secular growers that may look pricey, and the portfolio lands close to the blend/growth border in the Morningstar Style Box.

This fund is more concentrated than the analyst-run fund and is able to make sector bets up to 1,000 basis points different from the benchmark. While most of its holdings are index constituents, the fund's active share is around 70%, which helps prevent it from being a benchmark-hugger.

The process does leave some good ideas on the table, as its large-cap focus excludes most small- and mid-cap names, areas of historical strength for the firm. The fund's $1.6 billion asset base would make such flexibility possible on the margins while staying true to its large-cap orientation. It also makes analyst turnover even more relevant given how he's sourcing ideas.

T. Rowe's analysts have performed well overall. T. Rowe Price U.S. Large-Cap Core has beaten more than half its large-blend Morningstar Category peers and stayed a hair ahead of the S&P through September. It's done better than the S&P on the downside, which hasn't manifested itself much during Rottinghaus' tenure given a mostly up market but should be an advantage in the long term. T. Rowe Price U.S. Large-Cap Core outperformed 96% of its peers and the S&P in the May 2015-February 2016 drawdown.

Fidelity Mortgage Securities Rated Silver
In the meantime, we’ve revived our coverage of Fidelity Mortgage Securities FMSFX with a Silver rating. Here is Sarah Bush’s report:

Fidelity Mortgage Securities benefits from an experienced team, a thoughtful, well-resourced strategy, and low fees. It thus earns a Morningstar Analyst Rating of Silver.

Manager Bill Irving and comanager Franco Castagliuolo have distinguished themselves running pure government options, including Fidelity GNMA FGMNX, and take a similar approach here. This mortgage-focused fund is dominated by government-backed mortgages but has the flexibility to invest modestly in nongovernment fare. At 10% to 15% of the portfolio, the latter's mix of asset-backed and residential- and commercial-mortgage-backed securities is enough to push it into the intermediate-term bond Morningstar Category. The managers avoid significant interest-rate bets and instead focus on individual security selection. In recent years, for example, they have exploited regulatory changes and nuances in the performance of mortgage pools with different loan/value ratios to good effect in their effort to identify loans that are less likely to prepay than their prices imply. The pair has also shown a willingness to venture into less traveled and therefore higher-yielding corners of the market, such as floating-rate securities backed by reverse mortgages.

Although it has the flexibility to invest up to 10% in junk-rated fare, the fund tends to maintain a high-quality focus and therefore has held limited exposure to precrisis nonagency mortgage originations. As a result, it has lagged some of its more aggressive mortgage-focused peers who invested more heavily in that market, which has been a strong performer for most of the postcrisis period. The fund looks better relative to other government-mortgage-focused competitors and its government-only Bloomberg Barclays U.S. Mortgage Backed Securities Index. Relative to its typically wider-ranging intermediate-term bond category, its returns are only middling over Irving's tenure through September 2016, but its volatility-adjusted returns, as measured by its Sharpe ratio, are impressive.

This fund makes a strong choice for those in search of a high-quality mortgage fund with a little extra zip.

Fourth Quarter Market Outlook
Finally, we have posted our fourth quarter market outlook in the Bonus Reports section on the lower left side of


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