Morningstar - Q1 2020 - 20

Dispatches

of why fees are especially important in lowerreturning asset classes.
JPMorgan Government Bond

Morningstar Category
Interm Govt

People
Above Avg

Process
Above Avg

Parent
Above Avg
Exp
Ratio %

Morningstar
Analyst Rating

Share Class

Ticker

R6

OGGYX

0.35

„

I

HLGAX

0.48

´

R4

OGGOX

0.60

´

A

OGGAX

0.75

‰

R3

OGGPX

0.85

‰

R2

JGBZX

1.10

‰

C

OGVCX

1.40

‰

Source: Morningstar. Data as of 10/31/2019.

Franklin Small Cap Value is in a category with far
more alpha potential. Last time, we rated the
fund Above Average for Process but Average for
People and Parent. Overall, we gave it a Neutral.
We maintained those pillar ratings; however,
under our enhanced system, the relatively cheap
R6 share class gets a Bronze rating, as does
the Adv share class.
Franklin Small Cap Value

Morningstar Category
Small Value

People
Average

Process
Above Avg

Parent
Average

Share Class

Ticker

Exp
Ratio %

R6

FRCSX

0.62

´

Adv

FVADX

0.80

´

A

FRVLX

1.05

‰

R

FVFRX

1.30

‰

C

FRVFX

1.80

‰

Morningstar
Analyst Rating

Pimco International Bond (USD-Hedged) is another
interesting case. It rates Above Average for
People and Parent but High for Process. Pimco

Morningstar Q1 2020

Pimco International Bond (USD-Hdg)

Morningstar Category
World Bond-USD Hdgd

People
Above Avg

Process
High

Parent
Above Avg
Exp
Ratio %

Morningstar
Analyst Rating

Share Class

Ticker

Instl

PFORX

0.50

Œ

I-2

PFBPX

0.60

Œ

I-3

PFONX

0.65

Œ

Adm

PFRAX

0.75

Œ

A

PFOAX

0.90

„

R

PFRRX

1.15

„

C

PFOCX

1.65

´

Source: Morningstar. Data as of 10/31/2019.

American Century Short Duration shows what
happens to a pricey fund in a low-return category.
The two most expensive share classes charge
more than 100 basis points, steep for a short-term
bond fund. Had you owned the C shares for
the past 10 years, you'd have netted a meager
0.77% annualized return.
American Century Short Duration

Source: Morningstar. Data as of 10/31/2019.

20

likes to give institutional investors a good deal and
retail investors a kind of lousy deal. The four
cheapest share classes were rated Gold, while the
next two were rated Silver. The dismally priced C
shares get a Bronze.

Morningstar Category
Short-Term Bond

People
Average

Process
Average

Parent
Average
Exp
Ratio %

Morningstar
Analyst Rating

Share Class

Ticker

R6

ASDDX

0.34

‰

R5

ACSUX

0.39

‰

I

ASHHX

0.49

‰

Inv

ACSNX

0.59

‰

A

ACSQX

0.84

‰

R

ACSPX

1.09

Á

C

ACSKX

1.59

Á

Source: Morningstar. Data as of 10/31/2019.

Fundamentals still drive our ratings as they did
before, but we are elevating fees in our process as
they are the best predictor of future returns.
More than 100 funds were rated under the new
methodology when it debuted; the rest of our
coverage will be updated within a year.
Russel Kinnel is director of mutual fund research for
Morningstar Research Services and editor of Morningstar
FundInvestor.

Oh Ontario!
AMERICAS

Canada

On Dec. 19, the Canadian Securities Administrators
announced that in most provinces, the use of
deferred sales commissions, or DSCs, will be
banned in 2020, with a phaseout period estimated
to be about two years. The final amendments to
the policy will be released in early 2020.
This puts most of Canada on par with Australia,
India, the Netherlands, and the United
Kingdom, all countries where the use of deferred
sales charges is also banned (as outlined in
Morningstar's Global Investor Experience survey).
From Morningstar's perspective this is a very
welcome change and will serve investors well
once implemented.
All in all, very good news. Unless you live in
Ontario. As the CSA announcement says, "The
securities regulatory authorities of British
Columbia, Alberta, Saskatchewan, Manitoba,
Québec, Nova Scotia, Prince Edward Island, New
Brunswick, Newfoundland and Labrador,
Nunavut, Northwest Territories and Yukon will
publish for adoption final amendments in
early 2020 to ban the DSC option. The Ontario
Securities Commission will not be adopting final
amendments to ban the DSC option."
Emphasis ours.
DSCs were first introduced in 1987. Investors would
pay a sales charge only if they sold too soon:
typically, 6% of the initial investment in the first
Morningstar - Q1 2020

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