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The Thrilling 36 Funds

edited August 25 in Fund Discussions
Russel Kinnel from M* applies strict screens to narrow down the mutual fund universe to 25 - 50 funds.

Mr. Kinnel's screens are:
• Expense ratio in the Morningstar Category’s cheapest quintile
• Manager investment of more than $1 million in the fund
• Morningstar Risk rating lower than High
• Morningstar Medalist Rating of Bronze or higher
• Parent Pillar rating better than Average
• Returns greater than the fund’s category benchmark over the manager’s tenure for a minimum of five years
• Must be accessible to individual investors with a minimum investment no greater than $50,000
• No funds of funds
• Funds must be rated by Morningstar analysts

Six funds were added this year while two funds were removed.
Vanguard [8], American Funds [7], Fidelity [6], Dodge & Cox [5], and Baird [5] dominate the list.

https://www.morningstar.com/funds/thrilling-36-2
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Comments

  • PRWCX didn’t make the cut. Scandalous.
  • edited August 25
    The PRWCX expense ratio is 0.71% which lies in the Moderate Allocation category's average fee quintile.
    The fund's expense ratio would need to be below 0.50% (cheapest fee quintile) to be eligible for inclusion.

    Mentioned in the 2020 "Thrilling 36" exercise:
    "T. Rowe Price Capital Appreciation PRWCX actually wasn't on the list
    last time, either, but because I always get a lot of questions about it:
    The fund missed the expense ratio screen by 4 basis points.
    Don't worry, we still rate it Gold."
  • PRWCX didn't make the cut because its cost isn't much below average. But TRAIX's is, and it is available to individual Summit Preferred Services customers at T. Rowe Price with a $50K min. ("Must be a share class accessible to individual investors with a minimum investment of no greater than $50,000.")

    Mr. Kinnel made a point that he was screening share classes: "strict screens to narrow a universe of 15,000 fund share classes down to a short list ranging between 25 and 50. It’s purely a screen; I don’t make any additions or subtractions. "

    Why was VPMAX subtracted out?

    Ignoring these minor glitches, the real problem is with the requirement that the funds must be 100% covered by analysts. IOW, only the usual suspects.
  • edited August 25
    I don't know why VPMCX was included instead of VPMAX.
    The Admiral share class appears to pass all of Kinnel's screens.

    The "funds must be rated by M* analysts" screen is problematic
    since it excludes excellent funds which are not reviewed qualitatively by M*.
  • edited August 25
    My oversight. Thanks for the correction.

    BTW - What does he have against “funds of funds”? (ISTM some here have also frowned on the concept.) I’d say it depends on how deep and successful the available arsenal of funds is, the history, resources, and integrity of the firm making the allocation calls and - very importantly - fees..
  • edited August 25
    No worries.
    Although fees really do matter, I would not hesitate to own PRWCX if it was a good fit for my portfolio.

    Mentioned in the 2018 "28 Terrific Funds" article:
    "No funds of funds. The screens just won’t work as well with this type."

    The screens used in the 2018 exercise were the same except for two minor differences:
    Parent rating of Positive then vs. Parent Pillar better than average now
    Minimum investment $25K or less then vs. $50K or less now
  • Hi@hank
    I made a previous comment that I personally wouldn't use a 'fund of funds'; based upon forced choices of investment sectors that I wouldn't choose myself.
    No unlike the SP500 and its 11 sectors, there are many investors who choose equity sectors they favor, versus the 11 sectors of the SP500. The same can be noted for the bond sectors of the markets.
    One supposes that an individual investing in equity and/or bond sectors creates their own 'fund of funds' portfolio.
    At least this is our view for our portfolio; which is currently a 40/60 portfolio when all the pieces are counted.
    Remain curious,
    Catch
  • Anyone else trying to recreate Russ's screen with MFO P?
  • edited August 25
    Hi @catch22 - Mostly I was referring to one of Russ Kennel’s criteria in selecting his Magnificent 36 funds. He excluded funds-of-funds from consideration. Maybe I missed his rationale?

    I do recall you demurring on the subject and I think your reasoning makes perfect sense. In my 10 portfolio positions I have only 1 fund of funds. No particular reason. Sometimes fees are more attractive, perhaps because the firm finds it more efficient to administer such a fund held by individuals in larger amounts rather than having you or I owning smaller quantities of half a dozen of their funds. But I don’t think you are an exception. Very little is said here, ISTM, about funds of funds. I take that to mean folks by and large agree with your rational
    catch22 said:


    At least this is our view for our portfolio; which is currently a 40/60 portfolio when all the pieces are counted.

    Currently I’m 45 / 45 / 10 (other)

  • We have owned almost all of those seven American Funds over the many years we were building our pile, varying allocations depending on what was going on in the world economy. Did just fine for us- very stable. I always did like the committee approach to management, but I realize that many of you don't particularly care for that style. Hey, whatever works...
  • I think these criteria are too M* centric. Do you really care if M* rates a fund's "parent" as sub optimal? Most of these ratings are machine driven anyway.

    My favorite is down rating a fund ( I forgot which one) for "high manager turnover " when one of the managers died

    Nor have I ever understood their obsession with fees. This guarantees massive funds. Do you really care if a fund charges an above average fee if the track record is excellent?

    Why include closed funds?
  • edited August 26
    sma3 said:

    I think these criteria are too M* centric.
    Do you really care if M* rates a fund's "parent" as sub optimal?


    The culture of the parent firm is very important.
    Has the firm been involved in any scandals?
    Does the firm bring to market numerous funds of limited value just to increase AUM?
    How many of the firm's funds have closed permanently and disappeared over the years?
    Does the firm close funds to new investors when certain AUM thresholds are reached?
    How has the firm dealt with portfolio manager succession?
    What is the portfolio manager tenure/turnover?
    Is there a strong analyst bench?
    What is the analyst tenure/turnover?

    Nor have I ever understood their obsession with fees. This guarantees massive funds.
    Do you really care if a fund charges an above average fee if the track record is excellent?


    Overall, low-fee funds have significantly higher success rates (vs. a suitable index) than high-fee funds.
    Performance may be fleeting but fees tend to be "sticky."
    Some funds with above-average fees have excelled despite higher costs (e.g., ARTKX,SVFAX).

  • edited August 26
    I stopped paying attention to M* years ago because many of my best risk/reward funds in the past never met the above criteria.
    MFO lists are much better and looking at meaningful criteria. Example: look for Great Owl Funds .
  • sma3 said:


    Why include closed funds?

    To encourage you to stay the course if you own it?
  • Most of these ratings are machine driven anyway.
    True, and that's what disqualifies most funds from the list.

    "Funds must be rated by Morningstar analysts". That's human beings, not machines. If you're making a broader statement, that analysts rely on numbers that machines generate, what would be better? 100% touchy-feely analyses?

    I spot checked a few of the funds: MERDX, RPMGX, BUBIX, SIGIX, POAGX. Admittedly not a huge sample, but every one of them has a rating that is 100% analyst-driven.

    This is why I wrote: "the real problem is with the requirement that the funds must be 100% covered by analysts. " It's not so much fees that guarantees massive funds; it's analyst coverage. M* assigns analysts almost exclusively to the most popular (largest) funds. Though one can sometimes find an oddball or two, such as MERDX ($1.1B AUM).
  • edited August 26
    Well, I guess that MERDX doesn't mean what I thought at first. :)
  • msf said:

    PRWCX didn't make the cut because its cost isn't much below average. But TRAIX's is, and it is available to individual Summit Preferred Services customers at T. Rowe Price with a $50K min. ("Must be a share class accessible to individual investors with a minimum investment of no greater than $50,000.")
    .

    Summit Preferred requires $500,000 minimum invested overall. You can split hairs, but the cheapest way for any individual investor to access TRAIX is to hold a $500,000 minimum investment in T. Rowe Price investment accounts, which violates the purpose of the screen, certainly in spirit if not in letter.
  • I respectfully disagree.

    Kinnel wrote: "purely a screen; I don’t make any additions or subtractions." He says these are "simple, strict screens." Either one can access a particular share class or one can't.

    The hoops one must jump through don't render a share class inaccessible. The only exception he makes to strict adherence to his rules is that he excludes actively managed funds costing under 10 basis points if you must pay a fee to access them.

    Put another way, you might have to pay a small ransom to use a platform necessary to access a share class costing 20 basis points. But that doesn't matter. All that matters are those 20 basis points, not the total cost of access.

    Likewise, the fact that you might have to have a small fortune in other funds in order to invest a "mere" $50K in a share class doesn't matter. All that matters is that $50K minimum, not the total size of your portfolio.
  • Old_Joe,

    Parlez-vous un peu Francais?
  • No, just a few odd words here and there.:)
  • Old_Joe said:

    Well, I guess that MERDX doesn't mean what I thought at first. :)

    The very same thought leapt to my mind. I can't help it. My mind is attached to the rest of me, in the gutter. ;)

  • edited August 28
    I'm always ready to lead... straight to the bottom.
  • Old_Joe said:

    Well, I guess that MERDX doesn't mean what I thought at first. :)

    It was a Kiplinger top 25 back in the days under Rick Aster. IIRC they were based in Marin County.
  • edited August 28
    I went to Kinnel's article in the OP in the hope of finding his screener so I can eliminate the fees and Manager investment criteria but restrict only to mid cap and large cap funds and re-run the screen.

    I have not used M* screener in years. I could not maneuver the screener (under tools) in the new M* site. If anyone has a path to Kinnel's screen, please share.

    I admit to not reading the rest of the thread.
  • @Old_Joe and @Crash: one needs to use more than what Americans call four-letter words in order to swear in French. For instance, I might say « sh%# by itself in English, but the equivalent in French is « merde, alors. » FWIIW (not much), most imprecations and insults in French are several words long. I did a little simultaneous French-English interpreting and had the advantage of being able use fewer words in English than what the speaker had just used in French. We Americans seem to prefer F-bombs, but who knows why.
  • @BenWP that was an education. Thank you. Sacre bleu!!!!!
    https://en.wikipedia.org/wiki/Sacrebleu
  • edited August 29
    Can we move on from discussing various French expressions and focus on mutual funds here?
  • Can we move on from discussing various French expressions and focus on mutual funds here?

    Mais oui.
  • Kinnel seems to imply you have to subscribe to M* Institutional database to run the screen. I haven't tried it in Fund investor. But why publish articles for individual investors based on a screen only available to high end clients?
  • edited August 29
    Good question!
    M* does have a free trial offer for Morningstar Direct.
    I'm not familiar with the offer's terms and conditions.
    https://www.morningstar.com/business/brands/data-analytics/products/direct
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