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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.")
TRAIX management fee is 59 basis points, still not the lowest quintile. It would have to be below 50 basis points to qualify.
Also, the rule as stipulated is "Must be a share class accessible to individual investors with a minimum investment of no greater than $50,000." It doesn't specify where that minimum must be invested, or if it must be in that particular fund. Purchase of TRAIX requires a minimum investment of $500,000, so it violates the rule, end of story.
TRAIX management fee is 59 basis points, still not the lowest quintile. It would have to be below 50 basis points to qualify. Source?
On the TRAIX M* price page is a bar graph divided into quintiles that labels the price of TRAIX as "low" (first quintile).
For reference, the bar graph on the PRWCX price page labels that cost as "average" (third quintile), and the bar graph on the PRFDX price page labels that share class' cost as "below average" (second quintile).
Maybe you prefer text to graphics (I do). M* says that the distribution fee level for these institutional class shares is low relative to the fees of institutional class shares of "other funds that invest in a similar asset class".
And M* defines "low" as meaning "least expensive quintile".
It doesn't specify where that minimum must be invested, If we're going to split hairs this finely, as you noted the rule is that the share class must be accessible to "individual investors with a minimum investment of no greater than $50,000". Assuming arguendo that this means the individual investor(s) seeking to invest in TRAIX need have no more than $50,000 invested in toto, TRAIX still passes the test.
TRP requires only that individual investors be Summit Program investors at the Personal Services level. Individual investors can qualify with no money at all invested anywhere. They might have a wealthy old aunt living with them who has separately invested with TRP. That would do.
One other thing about splitting hairs. "Accessible" doesn't mean that an individual investor could actually invest in each of the Thrilling 36 with $50K or less. It's purely thought experiment; some of the funds passing this screen are closed. At least TRAIX is open to Summit Program Personal Services individual investors.
If you don't like TRAIX as an example of a fund share class that slipped through the cracks, here's another share class that Kinnel missed: NCRLX.
Kinnel requires just one manager to have invested $1M. It doesn't even have to be the longest tenured one. For example, in VEXPX, only 1 of 9 managers has $1M invested, and it isn't the most senior one. Likewise, in NCRLX, one of the managers, Bradley Tank, has $1M invested. That's enough.
There's also the matter of the fund outperforming its benchmark for the duration of a manager's tenure. Here too, Kinnel doesn't say that has to be the longest tenured manager, just one with at least five years on the job. So I looked at performance during Tank's stay. He started in April 2009.
The M* performance chart (set for "month end") shows that for the past 10 years (from Sept 2014 through Aug 2024), NCRLX modestly outperformed its benchmark index, 1.79% annualized to 1.57% annualized. I compared the performance of NCRLX with AGG between April 2009 and Aug 2014 and it was no contest. Portfolio Visualizer shows that NCRLX returned a total of about 50% while AGG returned just half of that.
That's not a misquote or an error on my part. The vast majority of the difference came from 2009. That's confirmed in the 2010 prospectus. For all of 2009, NCRLX returned 18.13% vs. 5.93% for the US Aggregate Bond Index.
The other screening criteria:
Lowest quintile expense ratio in category (i.e. fee level - broad): low (per M* screener)
M* risk lower than high: Above average (per M* screener)
M* medalist (Bronze+): Bronze
Parent pillar better than average: Above average
Share class accessible to investors with min not more than $50K: Accessible at Vanguard w/$500 min
Not a fund of funds: holds nearly 900 individual bonds
Rated by M* analysts: 100% analyst driven
How did Kinnel miss NCRLX?
My guess is that it was because he was looking at the "official" min for shares. But all that is required is that the share class be accessible somewhere for not more than $50K.
With respect to expense ratios, he was clear in saying that the figures come from the prospectuses. With mins, he didn't impose that restriction. Possibly because lots of funds are available through brokerages with lower mins than stated in their prospectuses.
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?
In it, he answered your question "why include closed funds" in much the same way that @WABAC did: "Many people still own them and want to know if they still make the grade."
He stated the purpose of his (then) $25K limit on min investment as "to help you get a list you can use."
Comparing how one could use the old Premium Screener as described in the piece with today's Investor screener reveals just how far M* has fallen in supporting retail users.
M* used to have a whole series of articles each with a different screen that Premium subscribers could run. They even contained a link to run the screen. Here's one example (via Wayback Machine): Finding Stock Funds with Big Yields
Unlike Kinnel's "Fantastic" and "Thrilling" series where he gives all the results, these other pieces named only a few of the results (3 of 19 in the Big Yields piece). While somewhat helpful, they carried a whiff of a sales pitch, telling you that if you were a Premium subscriber you could see all the results.
"That's where Morningstar's Premium Fund Screener comes in."
In the old days, when lot of stuff at M* was free, and several M* article used to include a link to authors' screen runs. But that stopped when much of the M* stuff was put under subscription.
However, this isn't important to me. I read many articles in the media and I don't have access to the databases used, so there is no hope of reproducing any of that data. But for a good reputable sources, I assume that the editors are making sure that the data presented are based on real databases and analyses and not fake or made up.
I have been with M* since 2009 and I have that much faith in M* too.
TRAIX management fee is 59 basis points, still not the lowest quintile. It would have to be below 50 basis points to qualify. Source?
On the TRAIX M* price page is a bar graph divided into quintiles that labels the price of TRAIX as "low" (first quintile).
Following your TRAIX price page link it seems I misread the price quintile score, which I had sourced from an earlier post by commenter @Observant1. However, that same Morningstar price page lists the "Min. Initial Investment" at $500,000.00, which explains why TRAIX failed Kinnel's screen.
The Morningstar Peer Group for PRWCX is "Moderate Allocation No Load." The lowest quintile fee level for this group is <0.50% while the expense ratio for PRWCX is 0.71%.
The Morningstar Peer Group for TRAIX is "Moderate Allocation Institutional." The lowest quintile fee level for this group is <0.60% while the expense ratio for TRAIX is 0.59%.
The Morningstar Peer Group for PRWCX is "Moderate Allocation No Load." The lowest quintile fee level for this group is <0.50% while the expense ratio for PRWCX is 0.71%.
The Morningstar Peer Group for TRAIX is "Moderate Allocation Institutional." The lowest quintile fee level for this group is <0.60% while the expense ratio for TRAIX is 0.59%.
Assuming there are no typos there, that's a curious though not impossible situation - institutional shares averaging a higher cost than retail shares. One possibility is that there might be some expensive funds offering only institutional class shares.
No matter. What these numbers represent is what M* calls "Morningstar Fee Level - Distribution". M* has three different fee level groupings, the other two being "Morningstar Fee Level - Broad" and "Morningstar Fee level - Variable Products". The question is which one Kinnel is using.
He writes only that FDIVX's ER of 0.65% takes it "into the cheapest quintile of its category" without further refinement. It's that terse description without more that tells us he is using M*'s "Broad" category grouping...
Morningstar Fee Level–Broad ranks funds using only the Morningstar category groupings as comparison groups to determine the rank of each fund. Morningstar Fee Level–Distribution, however, further isolates mutual funds with similar distribution channels and expense structures to create smaller comparison groups within each category grouping.
TRAIX does not fail Kinnel's screen. The tool and database he is using fail to precisely execute that screen. It's a common problem when M* (or anyone else) uses tools mechanically.
Here, the database semantics do not match his stated criterion of accessibility. The actual min, not the official min (what's in the database), determines whether a share class is accessible.
Consider PIMIX. $0 min, NTF at E*Trade. One can't get more accessible than that. But M*'s database says that you need $1M to play. So the tool fails to find PIMIX.
PONAX flunks the screen because, though its ER is in the lowest quintile of its distribution peers (higher cost front end load funds), its ER is too high relative to the fund's broad category (multisector bond) peers.
"Assuming there are no typos there, that's a curious though not impossible situation - institutional shares averaging a higher cost than retail shares. One possibility is that there might be some expensive funds offering only institutional class shares."
I thought this was odd as well since institutional funds are usually less expensive than retail funds. Unless M* provided inaccurate data, the lowest quintile fee levels referenced above are correct.
The M* Fee Level-Distribution Group (aka M* Peer Group) for FDIVX is "Foreign Large Cap No Load." The fund's expense ratio (0.65%) resides in the second cheapest fee quintile for this group. Consequently, your conclusion that Mr. Kinnel is using the M* Fee Level-Broad Group appears to be correct. The corresponding Fee Level-Broad Group for FDIVX includes Foreign Large Cap Value + Foreign Large Cap Blend + Foreign Large Cap Growth (all distribution channels and expense structures). Thanks for your research regarding M* fee level methodology!
Additional Morningstar Fee Level information for mutual funds.
Fee Level – Broad places funds into category groupings that are formed around the fund category systems of each region. Some fund categories form their own category grouping, while other fund categories are combined to form groupings of similar or related categories, particularly in the case of categories with small numbers of funds.
Fee Level – Distribution creates smaller comparison groups within each broad category grouping using the distribution channels available within each region.
Why have some categories been combined to form larger category groupings? Morningstar categories that have a similar focus can be combined into larger groupings. In most cases, those categories have relatively few share classes compared with most other categories in that market. With a small number of share classes, the interpretation of the ranks can be affected by a few share classes with an extremely high or low fees. More share classes generally means a more even distribution of fees. Still, it’s important that the categories that are combined generally have similar ranges of fees, otherwise some of the categories may dominate either the higher or lower ends of the range.
Comments
Also, the rule as stipulated is
"Must be a share class accessible to individual investors with a minimum investment of no greater than $50,000." It doesn't specify where that minimum must be invested, or if it must be in that particular fund. Purchase of TRAIX requires a minimum investment of $500,000, so it violates the rule, end of story.
Source?
On the TRAIX M* price page is a bar graph divided into quintiles that labels the price of TRAIX as "low" (first quintile).
For reference, the bar graph on the PRWCX price page labels that cost as "average" (third quintile), and the bar graph on the PRFDX price page labels that share class' cost as "below average" (second quintile).
Maybe you prefer text to graphics (I do). M* says that the distribution fee level for these institutional class shares is low relative to the fees of institutional class shares of "other funds that invest in a similar asset class".
And M* defines "low" as meaning "least expensive quintile".
It doesn't specify where that minimum must be invested,
If we're going to split hairs this finely, as you noted the rule is that the share class must be accessible to "individual investors with a minimum investment of no greater than $50,000". Assuming arguendo that this means the individual investor(s) seeking to invest in TRAIX need have no more than $50,000 invested in toto, TRAIX still passes the test.
TRP requires only that individual investors be Summit Program investors at the Personal Services level. Individual investors can qualify with no money at all invested anywhere. They might have a wealthy old aunt living with them who has separately invested with TRP. That would do.
https://www.troweprice.com/personal-investing/about/client-benefits/index.html
One other thing about splitting hairs. "Accessible" doesn't mean that an individual investor could actually invest in each of the Thrilling 36 with $50K or less. It's purely thought experiment; some of the funds passing this screen are closed. At least TRAIX is open to Summit Program Personal Services individual investors.
Kinnel requires just one manager to have invested $1M. It doesn't even have to be the longest tenured one. For example, in VEXPX, only 1 of 9 managers has $1M invested, and it isn't the most senior one. Likewise, in NCRLX, one of the managers, Bradley Tank, has $1M invested. That's enough.
There's also the matter of the fund outperforming its benchmark for the duration of a manager's tenure. Here too, Kinnel doesn't say that has to be the longest tenured manager, just one with at least five years on the job. So I looked at performance during Tank's stay. He started in April 2009.
The M* performance chart (set for "month end") shows that for the past 10 years (from Sept 2014 through Aug 2024), NCRLX modestly outperformed its benchmark index, 1.79% annualized to 1.57% annualized. I compared the performance of NCRLX with AGG between April 2009 and Aug 2014 and it was no contest. Portfolio Visualizer shows that NCRLX returned a total of about 50% while AGG returned just half of that.
That's not a misquote or an error on my part. The vast majority of the difference came from 2009. That's confirmed in the 2010 prospectus. For all of 2009, NCRLX returned 18.13% vs. 5.93% for the US Aggregate Bond Index.
The other screening criteria:
- Lowest quintile expense ratio in category (i.e. fee level - broad): low (per M* screener)
- M* risk lower than high: Above average (per M* screener)
- M* medalist (Bronze+): Bronze
- Parent pillar better than average: Above average
- Share class accessible to investors with min not more than $50K: Accessible at Vanguard w/$500 min
- Not a fund of funds: holds nearly 900 individual bonds
- Rated by M* analysts: 100% analyst driven
How did Kinnel miss NCRLX?My guess is that it was because he was looking at the "official" min for shares. But all that is required is that the share class be accessible somewhere for not more than $50K.
With respect to expense ratios, he was clear in saying that the figures come from the prospectuses. With mins, he didn't impose that restriction. Possibly because lots of funds are available through brokerages with lower mins than stated in their prospectuses.
https://www.morningstar.com/funds/making-fund-screeners-fantastic
Here's the 2017 "Fantastic 43" version that he mentions.
https://www.morningstar.com/funds/kinnel-43-fantastic-funds
In it, he answered your question "why include closed funds" in much the same way that @WABAC did: "Many people still own them and want to know if they still make the grade."
He stated the purpose of his (then) $25K limit on min investment as "to help you get a list you can use."
Comparing how one could use the old Premium Screener as described in the piece with today's Investor screener reveals just how far M* has fallen in supporting retail users.
M* used to have a whole series of articles each with a different screen that Premium subscribers could run. They even contained a link to run the screen. Here's one example (via Wayback Machine):
Finding Stock Funds with Big Yields
Unlike Kinnel's "Fantastic" and "Thrilling" series where he gives all the results, these other pieces named only a few of the results (3 of 19 in the Big Yields piece). While somewhat helpful, they carried a whiff of a sales pitch, telling you that if you were a Premium subscriber you could see all the results.
"That's where Morningstar's Premium Fund Screener comes in."
However, this isn't important to me. I read many articles in the media and I don't have access to the databases used, so there is no hope of reproducing any of that data. But for a good reputable sources, I assume that the editors are making sure that the data presented are based on real databases and analyses and not fake or made up.
I have been with M* since 2009 and I have that much faith in M* too.
His strict ER and manager investment criteria are not that important for me if the fund is from a reputable fund company.
The Morningstar Peer Group for PRWCX is "Moderate Allocation No Load."
The lowest quintile fee level for this group is <0.50% while the expense ratio for PRWCX is 0.71%.
The Morningstar Peer Group for TRAIX is "Moderate Allocation Institutional."
The lowest quintile fee level for this group is <0.60% while the expense ratio for TRAIX is 0.59%.
Source: Morningstar Managed Investment Reports
No matter. What these numbers represent is what M* calls "Morningstar Fee Level - Distribution". M* has three different fee level groupings, the other two being "Morningstar Fee Level - Broad" and "Morningstar Fee level - Variable Products". The question is which one Kinnel is using.
He writes only that FDIVX's ER of 0.65% takes it "into the cheapest quintile of its category" without further refinement. It's that terse description without more that tells us he is using M*'s "Broad" category grouping...
In its US Fee Level Methodology doc M* writes: TRAIX does not fail Kinnel's screen. The tool and database he is using fail to precisely execute that screen. It's a common problem when M* (or anyone else) uses tools mechanically.
Here, the database semantics do not match his stated criterion of accessibility. The actual min, not the official min (what's in the database), determines whether a share class is accessible.
Consider PIMIX. $0 min, NTF at E*Trade. One can't get more accessible than that. But M*'s database says that you need $1M to play. So the tool fails to find PIMIX.
PONAX flunks the screen because, though its ER is in the lowest quintile of its distribution peers (higher cost front end load funds), its ER is too high relative to the fund's broad category (multisector bond) peers.
(Source: M* new screener)
institutional shares averaging a higher cost than retail shares.
One possibility is that there might be some expensive funds offering only institutional class shares."
I thought this was odd as well since institutional funds are usually less expensive than retail funds.
Unless M* provided inaccurate data, the lowest quintile fee levels referenced above are correct.
The M* Fee Level-Distribution Group (aka M* Peer Group) for FDIVX is "Foreign Large Cap No Load."
The fund's expense ratio (0.65%) resides in the second cheapest fee quintile for this group.
Consequently, your conclusion that Mr. Kinnel is using the M* Fee Level-Broad Group appears to be correct.
The corresponding Fee Level-Broad Group for FDIVX includes Foreign Large Cap Value +
Foreign Large Cap Blend + Foreign Large Cap Growth (all distribution channels and expense structures).
Thanks for your research regarding M* fee level methodology!
Fee Level – Broad places funds into category groupings that are formed around the fund category
systems of each region. Some fund categories form their own category grouping, while other fund
categories are combined to form groupings of similar or related categories, particularly in the case
of categories with small numbers of funds.
Fee Level – Distribution creates smaller comparison groups within each broad category grouping
using the distribution channels available within each region.
Why have some categories been combined to form larger category groupings?
Morningstar categories that have a similar focus can be combined into larger groupings.
In most cases, those categories have relatively few share classes compared with most
other categories in that market. With a small number of share classes, the interpretation
of the ranks can be affected by a few share classes with an extremely high or low fees.
More share classes generally means a more even distribution of fees.
Still, it’s important that the categories that are combined generally have similar ranges of fees,
otherwise some of the categories may dominate either the higher or lower ends of the range.
Fee Level Global Calculations - PDF