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The oldest share class version AMOBX has 1.71% er plus 5% load.
M* continues to ding FAIRX @1% er with a Negative Price score, but AMOAX gets a Positive Price score @0.97% with 5.25% load.
In the positive review of AMOAX, M* actually states that investors "can skip the fund's maximum sales load of 5.25% by buying it on Schwab's no-load, no-fee platform."
Charles, your objections to loads and devotion to full fund records are clear and noted. However, regarding these factors as determinative without examining them more closely can sometimes lead one to conclusions that, shall we say, are less than universally shared.
I'll try to address some issues you raised. I'm not expecting to change your perspective; I'm simply offering a different one.
Loads (asbestos suit on) - You point out that even M* recognizes that AMOAX is available without a load. This is a recognition that the load is not intrinsic to the fund. Rather, it is an add-on, ostensibly to pay for advisory services.
While we can debate how good a mechanism commissions (loads) are for paying advisors, that is nevertheless the purpose they serve. If someone chooses to pay for service (advice) without receiving it (e.g. by buying directly from the fund), that is indeed a waste of money - not an expenditure required by the fund.
There is, however, one aspect of load fund costs that one cannot avoid, even when the load is waived. That is the trailing fee that is built into the ER. Generally speaking, there are two broad groups of funds that carry these additional fees: load funds and NTF funds. These "administrative services" fees hike the cost of the fund.
Relative to load funds, the 0.96% charged by AMOAX is low (because they all tend to embed trailing fees). Relative to no load retail funds, the 1.00% charged by FAIRX is typical (not a "ding" by M*, not a negative score but "average"). That's because many NL funds don't hike their fees to show up on NTF lists, so the ones that do have difficulty competing with their "peer group". That same 1.00% ER would look high relative to institutional class funds, or even "pseudo-insitutional" class funds like DNLVX with its $100K min.
Here too, the lesson is that if you don't want to pay for services on an ongoing basis, don't buy load funds or NTF funds.
With respect to performance - AMOAX got a complete makeover in June 2004, when it dropped two of its three manager (the last one dropped out a year later) and hired a new set of three managers (with more added in the ensuing years). In the previous five years (2003, 2002, ..., 1999), the fund's turnover ratios were 264%, 306%, 380%, 425%, 378%. Even Dick Strong would crack a smile at those figures. Past five years (ending 2012)? 44%, 32%, 44%, 11%, 31%. Not quite in John Bogle index territory, but getting there.
The fund prospectus was changed - the fund would no longer apply sector rotation, as it had stated in its 2004 prospectus ("The Investment Manager utilizes a process, known as sector rotation ...") In its place, the 2005 prospectus declared that "Morgan Stanley Investment Advisors, Inc. follows a flexible investment program in seeking to achieve its investment objective."
Heck, they even changed the fund name in July 2006. More substantial was that they also allowed the fund to become more concentrated.
Though I've focused on the latest significant transition of the fund (it has had the same management in place since 2004, aside from additions), it may be worth a brief mention of the other transitions also included in the lifetime performance graph.
The Fund was incorporated in the State of Maryland on December 13, 1979 under the name InterCapital Industry-Valued Securities Inc. Effective March 21, 1983, the Fund’s name was changed to Dean Witter Industry-Valued Securities Inc. On April 6, 1987, the Fund was reorganized as a Massachusetts business trust, under a Declaration of Trust, with the name Dean Witter American Value Fund. Effective June 22, 1998, the Fund’s name was changed to Morgan Stanley Dean Witter American Value Fund. Effective April 26, 1999, the Fund’s name was changed to Morgan Stanley Dean Witter American Opportunities Fund. Effective June 18, 2001, the Fund’s name was changed to Morgan Stanley American Opportunities Fund. Effective July 3, 2006, the Fund’s name was changed to Morgan Stanley Focus Growth Fund.
It is true that over most of the fund's lifetime the cumulative returns trailed those of the S&P 500. How much of that is from a poor start is difficult to discern from long term graphs. That question aside, if one looks at "just" the past ten years (roughly coinciding with the term of the current management and latest incarnation) through Jan 15, 2014, the figures look like:
(not that beating the S&P over the past ten years is a big deal; the average return of large cap growth funds over the same period also beat the S&P 500, though just by a few basis points). Data from M* overview page of AMOAX.
Alternative award goes to the AQR Managed Futures fund? I mean, it's the best managed futures fund probably, but that's not saying a whole lot for a category that I think continues to not work that well in the mutual fund format.
Why not Marketfield? Oh wait, actually, don't give a fund I own an M* award.
@msf. looks like the same guys (dennis lynch and team) are managing the ms midcap growth and ms small cap growth. i do have access to the instl shares: mpegx and mssgx. what i found over the years is that the team has great connections on the street. they get the pre-IPO or IPO shares from the 'non-affiliated' underwrites and sit on them. hence the low turnover. when other IPO investors flip, this team sits tight. is that a good management style? i don't know. did they really think that Groupon at $20 was a good deal? do they have a gut to either exit to protect their shareholders or to double up if they believe in company? groupon proceeded to $3 or so and the 'golden' child midcap growth underperformed for a year and went from 5 stars to hardly 3. the holding disappeared for a while and i hoped they took their losses and exited still at somewhat decent price. but NO, the holding dropped from the top solely because of loosing its market value; no additions were made either. GRPN then regained much in 2013. but i am staying out.
i play these funds, but very cautiously, via tiny percentages in my 401k. today, they are loaded on twitter and similar stuff. i don't believe they are doing careful analysis and making fundamental decisions. i believe they have good friends on the sell side.
Thanks for the insight. I hadn't bothered to check what other funds this team runs.
MPEGX. I haven't followed that for many years. Great fund originally, and institutional shares were accessible at the retail level via Schwab, Fidelity, and Jack White (remember them?).
But Miller Anderson Sherrerd (MAS) was acquired by Morgan Stanley, rebranded, access narrowed. When Arden Armstrong left, I lost interest.
That history goes to demonstrate my point - the fund after Armstrong was/is nothing like the fund she ran, and buying shares now won't get you that sort of fund.
Reply to @msf: I am so dense. I never realized that the "Sales Fee" was meant for the "Sales Person," which is a broker or financial advisor as opposed to the fund house proper.
If M* contained more of your good detail in their write-ups msf, that would be a good thing. It would at least help fuel the healthy debate on mutual fund loads and fees in general.
I believe that most mutual fund investors are not sophisticated investors, MFO board members excluded, of course, except in my case. So, I am indeed predisposed against loaded funds.
Even worse I think now that you've made me realize these loads may get paid even if there is no broker or adivsor or middleman involved. I suspect fund houses do not refund back the load in such cases.
Ouch.
I cringe at the thought of say a young investor or elderly widowed spouse (well intended but likely unsophisticated investors) taking the advice of a broker offering up loaded funds. The 5-7% comes off the top. Then, the exercise is repeated each year after M* releases its new Fund of the Year Award...again to a loaded fund. And, there goes another 5-7%. What a racket!
Yes, it does indeed bother me that M* continues to give gold ratings to loaded funds, which is a defacto endorsement of this indefensible practice. If we can't count on M* to call attention to such sales fees, who can we count on?
On Fairhome, I do indeed take the "neutral" as a ding, as it 1) seems to a contributor to a silver rather than gold M* metal, and 2) seems inconsistent with levels given to funds like AMOBX:
versus
I just don't get it.
Fairholme has no loads or 12b-1 fees and just a single share class, while Morgan Stanley has loads, 12b-1 fees and multiple share classes. How can AMOBX be given a better price rating than FAIRX? It actually charges a full 1% 12b-1! And, the "neutral" parent rating did not prevent AMOBX getting the gold rating.
Alas, the inconsistencies of the M* rating system can drive us all crazy, so I try not to fret too much, failing in this case.
Glad to see MS took steps to improve the leadership of this team since 2004. Like you say, it's done pretty well, but I would rather be in FMILX or SEQUX, or maybe even FCNTX or ELFNX, which have better 10-, 5-, and 3-year numbers, also a great 2013, have lower fees, and no loads!
(I just noticed that FMILX has a "neutral" price rating also and it has a lower fee than any of the Morgan Stanley Focus Growth share classes, which again incredulously gets a "positive" price rating.)
Enough fun. Hey, gotta get back to my homework for Mr. Studzinski.
Reply to @Charles: Thanks for the light tone. Some day I'll start a thread on loads and advisors, and we can flail away.
(I do not pay loads, but I also don't discount funds because someone else chooses to; nor do I begrudge people who knowingly pay for advice or even delegate investment management.)
All I'll try to address here are M*'s "inconsistencies".
I'm reminded of ads that tout the "precision" of digital readouts, controls, whatever. I find them amusing, because it is analog that offers great precision (though perhaps not accuracy). "Digital", meaning "discrete" rather than continuous, can offer precision no finer than its granularity. Even though there is a greater underlying precision.
M* offers five levels of star ratings. They state clearly that 1/3 of funds get 3 stars. So a fund that ranks in the 40th percentile gets the same rating as a fund ranking in the 60th. Hardly precise. But digital.
Same idea with fee levels. Except there, all five groupings (high, above average, average, below average, low) represent quintiles. These rankings are relative to their peers, not to the whole universe of share classes and funds. While one can, and most people here do, argue with M*'s definitions of peers, it seems pretty obvious that fee levels require some sort of classification. Otherwise institutional, index, and Vanguard shares would dominate the low and below average groups.
As it turns out, the break in fee levels between below average and average, using quintiles and share classes, is at 1.00%. Out of 27,364 share classes, those with 0.99% ER or less fall within the bottom two quintiles in cost. So in this undifferentiated universe, FAIRX would still have an average cost, and AMOAX would be considered below average in cost. The vagaries of discrete metrics.
What all this leads up to is the idea that just because two funds have the same ratings on all five "pillars" does not mean that they are anywhere close in "quality". Just as a 40th and 60th percentile fund both earn three stars, two funds with the same pillar ratings can be very different.
Without more precision, the only assumption that seems valid is that analyst ratings for a given fund will not go down (and may go up) if one pillar improves and all others remain constant. (If analyst ratings and pillar ratings were continuous, I'd say that the partial derivatives of analyst rating with respect to any pillar were nonnegative almost everywhere.)
M* in fact says, in its usual oblique way, that the analyst ratings are nonlinear. You can't simply sum the "scores" of the five pillars and get the analyst rating. "We not only evaluate each pillar, but also the interaction between them, which we believe is crucial to understanding a fund's overall merit."
Likewise, a perfect "pillar score" - all five pillars being positive, doesn't guarantee success. The fund could have barely eeked out a positive rating in each. One can't tell that from the coarse pillar scores. For example, consider PFORX. All pillars positive, but it gets only a silver star.
Your theory seems to be that if two funds have the same pillar scores (say, positive) in four pillars, but differ only in the price pillar, then it must be the price pillar pulling down the overall score (analyst rating). What I'm trying to explain here is that it could just as easily be one or more of the other pillars dragging the fund down. One may not see that, because of the coarseness of the pillar ratings.
You stated that the price pillar was what pulled FAIRX down to silver. I'm not sure of that, especially when I look at ARTQX. It's got the same four "positive" pillars as FAIRX. The only difference in pillars is that while FAIRX is rated neutral on price, ARTQX is rated negative. Yet ARTQX is still promising enough to get the gold star.
This is not inconsistent with the idea that the better a fund does with a given pillar, the better its analyst rating. The pillar ratings are simply to coarse to know how much better ARTQX is than FAIRX in performance, in people, in process, in parent.
I have never really given any weight to who Morningstar picks as their Managers of the Year…..I don't think that I have ever owned one either, other than the Artisan Fund.
Well ..... I'm going to give all my managers 3 years to win this coveted award. If they don't, I intend to dump their fund and chase another pie in the sky.
Appreciate all the thoughts in this thread - especially msf's always well researched, thoughtful and well written replies. Please keep it coming.
Comments
Morgan Stanley Focus Growth A AMOAX
@5.25% Front-Load
The oldest share class version AMOBX has 1.71% er plus 5% load.
M* continues to ding FAIRX @1% er with a Negative Price score, but AMOAX gets a Positive Price score @0.97% with 5.25% load.
In the positive review of AMOAX, M* actually states that investors "can skip the fund's maximum sales load of 5.25% by buying it on Schwab's no-load, no-fee platform."
I'm speechless.
AMOBX has trailed the S&P virtually its entire lifetime!
Here's M*'s own performance plot:
The fund's 64% drawdown in 2009 was not from 2007, but 1999!
M* gives this fund its Gold Rating, which means it's a "best of breed" fund with "highest potential of success." Can you believe?
Here's a look a five different evaluation periods through Dec 2013 using MFO's risk and return ranking methodology for the large growth category
I'll try to address some issues you raised. I'm not expecting to change your perspective; I'm simply offering a different one.
Loads (asbestos suit on
While we can debate how good a mechanism commissions (loads) are for paying advisors, that is nevertheless the purpose they serve. If someone chooses to pay for service (advice) without receiving it (e.g. by buying directly from the fund), that is indeed a waste of money - not an expenditure required by the fund.
There is, however, one aspect of load fund costs that one cannot avoid, even when the load is waived. That is the trailing fee that is built into the ER. Generally speaking, there are two broad groups of funds that carry these additional fees: load funds and NTF funds. These "administrative services" fees hike the cost of the fund.
Relative to load funds, the 0.96% charged by AMOAX is low (because they all tend to embed trailing fees). Relative to no load retail funds, the 1.00% charged by FAIRX is typical (not a "ding" by M*, not a negative score but "average"). That's because many NL funds don't hike their fees to show up on NTF lists, so the ones that do have difficulty competing with their "peer group". That same 1.00% ER would look high relative to institutional class funds, or even "pseudo-insitutional" class funds like DNLVX with its $100K min.
Here too, the lesson is that if you don't want to pay for services on an ongoing basis, don't buy load funds or NTF funds.
With respect to performance - AMOAX got a complete makeover in June 2004, when it dropped two of its three manager (the last one dropped out a year later) and hired a new set of three managers (with more added in the ensuing years). In the previous five years (2003, 2002, ..., 1999), the fund's turnover ratios were 264%, 306%, 380%, 425%, 378%. Even Dick Strong would crack a smile at those figures. Past five years (ending 2012)? 44%, 32%, 44%, 11%, 31%. Not quite in John Bogle index territory, but getting there.
The fund prospectus was changed - the fund would no longer apply sector rotation, as it had stated in its 2004 prospectus ("The Investment Manager utilizes a process, known as sector rotation ...") In its place, the 2005 prospectus declared that "Morgan Stanley Investment Advisors, Inc. follows a flexible investment program in seeking to achieve its investment objective."
Heck, they even changed the fund name in July 2006. More substantial was that they also allowed the fund to become more concentrated.
Though I've focused on the latest significant transition of the fund (it has had the same management in place since 2004, aside from additions), it may be worth a brief mention of the other transitions also included in the lifetime performance graph. It is true that over most of the fund's lifetime the cumulative returns trailed those of the S&P 500. How much of that is from a poor start is difficult to discern from long term graphs. That question aside, if one looks at "just" the past ten years (roughly coinciding with the term of the current management and latest incarnation) through Jan 15, 2014, the figures look like:
cumulative return: 152.57%
annualized return: 9.71%
S&P annualized return: 7.22%
(not that beating the S&P over the past ten years is a big deal; the average return of large cap growth funds over the same period also beat the S&P 500, though just by a few basis points). Data from M* overview page of AMOAX.
Why not Marketfield? Oh wait, actually, don't give a fund I own an M* award.
Regards,
Ted
M* Managed Futures Funds: http://news.morningstar.com/fund-category-returns/managed-futures/$FOCA$13.aspx
i play these funds, but very cautiously, via tiny percentages in my 401k. today, they are loaded on twitter and similar stuff. i don't believe they are doing careful analysis and making fundamental decisions. i believe they have good friends on the sell side.
MPEGX. I haven't followed that for many years. Great fund originally, and institutional shares were accessible at the retail level via Schwab, Fidelity, and Jack White (remember them?).
But Miller Anderson Sherrerd (MAS) was acquired by Morgan Stanley, rebranded, access narrowed. When Arden Armstrong left, I lost interest.
That history goes to demonstrate my point - the fund after Armstrong was/is nothing like the fund she ran, and buying shares now won't get you that sort of fund.
If M* contained more of your good detail in their write-ups msf, that would be a good thing. It would at least help fuel the healthy debate on mutual fund loads and fees in general.
I believe that most mutual fund investors are not sophisticated investors, MFO board members excluded, of course
Even worse I think now that you've made me realize these loads may get paid even if there is no broker or adivsor or middleman involved. I suspect fund houses do not refund back the load in such cases.
Ouch.
I cringe at the thought of say a young investor or elderly widowed spouse (well intended but likely unsophisticated investors) taking the advice of a broker offering up loaded funds. The 5-7% comes off the top. Then, the exercise is repeated each year after M* releases its new Fund of the Year Award...again to a loaded fund. And, there goes another 5-7%. What a racket!
Yes, it does indeed bother me that M* continues to give gold ratings to loaded funds, which is a defacto endorsement of this indefensible practice. If we can't count on M* to call attention to such sales fees, who can we count on?
On Fairhome, I do indeed take the "neutral" as a ding, as it 1) seems to a contributor to a silver rather than gold M* metal, and 2) seems inconsistent with levels given to funds like AMOBX:
versus
I just don't get it.
Fairholme has no loads or 12b-1 fees and just a single share class, while Morgan Stanley has loads, 12b-1 fees and multiple share classes. How can AMOBX be given a better price rating than FAIRX? It actually charges a full 1% 12b-1! And, the "neutral" parent rating did not prevent AMOBX getting the gold rating.
Alas, the inconsistencies of the M* rating system can drive us all crazy, so I try not to fret too much, failing in this case.
Glad to see MS took steps to improve the leadership of this team since 2004. Like you say, it's done pretty well, but I would rather be in FMILX or SEQUX, or maybe even FCNTX or ELFNX, which have better 10-, 5-, and 3-year numbers, also a great 2013, have lower fees, and no loads!
(I just noticed that FMILX has a "neutral" price rating also and it has a lower fee than any of the Morgan Stanley Focus Growth share classes, which again incredulously gets a "positive" price rating.)
Enough fun. Hey, gotta get back to my homework for Mr. Studzinski.
(I do not pay loads, but I also don't discount funds because someone else chooses to; nor do I begrudge people who knowingly pay for advice or even delegate investment management.)
All I'll try to address here are M*'s "inconsistencies".
I'm reminded of ads that tout the "precision" of digital readouts, controls, whatever. I find them amusing, because it is analog that offers great precision (though perhaps not accuracy). "Digital", meaning "discrete" rather than continuous, can offer precision no finer than its granularity. Even though there is a greater underlying precision.
M* offers five levels of star ratings. They state clearly that 1/3 of funds get 3 stars. So a fund that ranks in the 40th percentile gets the same rating as a fund ranking in the 60th. Hardly precise. But digital.
Same idea with fee levels. Except there, all five groupings (high, above average, average, below average, low) represent quintiles. These rankings are relative to their peers, not to the whole universe of share classes and funds. While one can, and most people here do, argue with M*'s definitions of peers, it seems pretty obvious that fee levels require some sort of classification. Otherwise institutional, index, and Vanguard shares would dominate the low and below average groups.
As it turns out, the break in fee levels between below average and average, using quintiles and share classes, is at 1.00%. Out of 27,364 share classes, those with 0.99% ER or less fall within the bottom two quintiles in cost. So in this undifferentiated universe, FAIRX would still have an average cost, and AMOAX would be considered below average in cost. The vagaries of discrete metrics.
Here's M*'s doc on its fee level methodology: http://corporate.morningstar.com/US/documents/MethodologyDocuments/MethodologyPapers/FeeLevelForFundsMethodology.pdf
What all this leads up to is the idea that just because two funds have the same ratings on all five "pillars" does not mean that they are anywhere close in "quality". Just as a 40th and 60th percentile fund both earn three stars, two funds with the same pillar ratings can be very different.
Without more precision, the only assumption that seems valid is that analyst ratings for a given fund will not go down (and may go up) if one pillar improves and all others remain constant. (If analyst ratings and pillar ratings were continuous, I'd say that the partial derivatives of analyst rating with respect to any pillar were nonnegative almost everywhere.)
M* in fact says, in its usual oblique way, that the analyst ratings are nonlinear. You can't simply sum the "scores" of the five pillars and get the analyst rating. "We not only evaluate each pillar, but also the interaction between them, which we believe is crucial to understanding a fund's overall merit."
http://corporate.morningstar.com/US/documents/MethodologyDocuments/AnalystRatingforFundsMethodology.pdf
Likewise, a perfect "pillar score" - all five pillars being positive, doesn't guarantee success. The fund could have barely eeked out a positive rating in each. One can't tell that from the coarse pillar scores. For example, consider PFORX. All pillars positive, but it gets only a silver star.
Your theory seems to be that if two funds have the same pillar scores (say, positive) in four pillars, but differ only in the price pillar, then it must be the price pillar pulling down the overall score (analyst rating). What I'm trying to explain here is that it could just as easily be one or more of the other pillars dragging the fund down. One may not see that, because of the coarseness of the pillar ratings.
You stated that the price pillar was what pulled FAIRX down to silver. I'm not sure of that, especially when I look at ARTQX. It's got the same four "positive" pillars as FAIRX. The only difference in pillars is that while FAIRX is rated neutral on price, ARTQX is rated negative. Yet ARTQX is still promising enough to get the gold star.
This is not inconsistent with the idea that the better a fund does with a given pillar, the better its analyst rating. The pillar ratings are simply to coarse to know how much better ARTQX is than FAIRX in performance, in people, in process, in parent.
Appreciate all the thoughts in this thread - especially msf's always well researched, thoughtful and well written replies. Please keep it coming.