Hi Guys,
Morningstar Star ratings should never be used as the sole criteria for mutual fund selection.
Investing is not that simple or easy. Even if the Stars are incorporated into a multi-dimensional criteria set, it should never be awarded a top weighting. The empirical research data strongly supports this judgment.
As early as the mid-1990s academic research and the financial industry recognized and identified deficiencies in the Morningstar system. Even Morningstar acknowledged those same shortcomings.
The ratings are singularly dependent on past performance, and persistence is a real investment quagmire. That is the likely incentive that goaded Morningstar to both continuously modify its ratings, and later, to introduce another, independent rating system, its Metals standard.
Here is a reference to a fair Fiduciary News article that nicely summarizes the checkered history of the Morningstar Stars and alternate ways to use them:
http://fiduciarynews.com/2013/01/morningstar-star-ratings-do-they-or-dont-they-predict/
The Stars are really not a pretty picture if deployed as a single determinant. Anyone who used the Stars as their primary fund screening tool must be more than a little annoyed. There are a legion of respectable critics who have savagely attacked the Stars relentlessly. Here is a reference to a Bill Sharpe study that was reported in 1998:
http://www.stanford.edu/~wfsharpe/art/msrar/msrar.htm
Professor Sharpe was not a happy warrior with any simple ranking system, including his own Sharpe Ratio. Here is yet another more recent study conducted by Vanguard:
http://www.vanguard.com/pdf/icrwmf.pdf
The findings are similar although differing in detail because of study objectives. The Star system is a consistent disappointment when applied as a projection tool. The investment world’s pull of the regression-to-the-mean influence overcomes superior past performance as a general rule. Fund costs are a much more powerful correlation factor.
Even Morningstar somewhat accepts this assessment. Here is a dated reference by Morningstar’s Russ Kinnel that explored the issue:
http://www.morningstar.co.uk/uk/news/66497/how-expense-ratios--star-ratings-predict-success.aspx
Kinnel concludes that: “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.” But a multifactor selection model can enhance the success odds.
I’m not advocating that Star ratings are worthless.
I am proposing that when making mutual fund investment decisions, a multifactor model should be assembled that includes costs, turnover rates, management stability, fund size, stock price to earnings ratios, and perhaps a host of other components. These components should NOT be weighted equally. Studies have demonstrated that total fund costs are the dominant success influence, and therefore should be accorded the heaviest weight factor.
By way of disclosure, I do look at the Star ratings when making a fund choice. However, I’m not unduly swayed by its rating. I explore more deeply the reasons why a fund has a lower evaluation. I presently own two mutual funds with two Star scores. I do not find that lowly status to be especially worrisome. It is not the end of the world. Stay the course, guys.
Best Wishes.

A lot of these flow changes are not caused by retail investors. Firms like Good Harbor Financial trade billions of dollars every month and they sold equities and bought bonds last week. There are also a whole bunch of momentum-based strategy ETFs now that have attracted assets in the billions.

Clearly the industry guys don't understand the target audience for this. Just think back to the first time you started with a mutual fund, let alone a regular contribution scheme outside of a 401k and imagine now a completely financially naive person doing this. And you were probably an exception in aptitude and interest in learning or got burnt in the very first investment.
They don't know an IRA from an iPad let alone a Roth.
They wouldn't know who to call to set up things.
Even if they did, they would all invest in the most expensive and mediocre fund their first banker or broker they talked to rather than understand that there are such things as low cost, low volatility etfs or funds.
They would stop contributing the first time, a fund that promised them more than the GIC went down 5 or 10%.
Instead of the industry panicking about money being parked outside their fee structure, they should be thinking about products that will cater to that $15k coming out of that savings plan with allocation funds. The biggest threat to the industry is that people would have achieved a bit of financial literacy and discipline by the time they have saved that $15k that they would not fall prey to exploitative brokers and funds.

Can't be too careful. Only my wife uses the ATM cash-card. And our two accounts are with different local credit unions, not any of the mega-banks. We do have online access and use it, but I guess we can't really do any better than to eliminate the risks, and then proceed. I mean, at least when we use online access, we know that our little financial institutions are not likely targets for the filthy, scummy criminal hackers who don't deserve to be breathing and living at all. A pox on them. May they all be vaporized and disappear. Slowly, painfully.

"UKRAINE: Having rejected a European trade deal, the country accepted Russia’s guarantee of part of its budget, temporarily stemming a financial crisis. Now Ukraine is torn between building closer ties to Russia or to the European Union. There is political chaos and violence, possibly to be followed by a financial crisis after all."
.....This is not to mention that the current President or Prime Minister or whatever JAILED his delicious blonde competition, in order to just get her out of the way. Did she not win the election, and HE stole it?

http://www.seafarerfunds.com/fund/portfolio-review

I believe that the risk of a liquidity crisis or “credit event” in China (i.e., a default of a financial institution or major corporate counterparty) has undeniably risen. Combined, these risks have instilled a degree of panic within the emerging markets, and individual stocks have begun to trade in an erratic fashion.
As strange as it might seem, I am not overly concerned about most of the aforementioned risks. Maybe it is because I have experienced prior circumstances that were similar, and in my opinion, those past events were far more trying than present conditions. Maybe it is because valuations have grown increasingly attractive; in my view, they sufficiently discount nearly all the risks noted above. Maybe it is because I secretly enjoy financial panic. Panic is a brutal force, and it is unknowable. You cannot determine what damage it will do, or the extent to which stocks will fall in its wake; you can only make educated guesses about what might be susceptible. Yet panic is also beautiful, if only for the consistency of its effect: it always delivers better investment opportunities than existed previously. Like any investor, I am frustrated by panic, yet I thrive on it.

Despite this warning, I am not panicking, nor is the Fund abandoning its long-term strategy. We are cognizant of the many risks that surround the emerging markets; as usual, some risks are ebbing, and others are escalating. I imagine that markets will be rough over the coming months. Risks may emanate from many different markets, but China should be investors’ primary concern. For the time being, the portfolio’s construct will remain largely unchanged: we are reasonably confident that the portfolio is prepared for financial distress, even as we cannot know where panic will manifest itself, or how far it will go. Valuations are favorable now, and support a long-term approach, even if the short-term outlook appears rocky.

Reply to @Crash: I think that statement is one of those things that seem profound and wise but has very little practical value.
There is nothing magical about 3 or 5 or 10 years. It doesn't correspond to any market cycles, length of bull or bear markets, economic or business cycles or for that matter ANYTHING that is quantifiable to justify it.
These puritanical rules of holding for a long time come from an attempt to discourage what might be an alternative instead - frequent trading based on emotions, fear, greed, insufficient due diligence or understanding of what one is buying if it is considered short term, etc. For most people, such an alternative will likely destroy portfolios. The longer you encourage someone to hold, less likely they are to meddle unproductively. That is the only rationale for holding something for long terms. It is a more acceptable form of proscribing than saying you will do stupid things if you keep trading in and out. Same reason why religions weave stories behind actions that they want to discourage for practical reasons like not eating otherwise beneficial animals or not eating infection-ridden animals, not changing spouses frequently, etc.
The context for people with large amounts of money who can afford to wait out any downdraft or even complete loss of value in any one instrument without it creating a catastrophic financial problem is very different from a retail investor whose bet on any one instrument going bad can create a non-trivial financial problem.
But the puritanical prescription appeals to fund managers who need plausible rationalizations for short term underperformance and insecure retail investors who find anything more than just buying and holding daunting and are insecure enough about that forced choice that they have to label and brand as bad any behavior that they are afraid will make others happier/richer/etc. Same reason why fundamentalists try so hard to impose their choices on others.
The time to buy is when an instrument is researched sufficiently to have an investment thesis that suggests growth in value and the time to sell is when that investment thesis no longer holds. The latter could happen in one week or in 10 years, like I said, there is no magical time frame that suddenly converts an instrument from being speculative to being an investment. At least, not in any way that is justifiable. The investment thesis could be diversification over uncorrelated instruments, deflation expectation, drawdown protection, etc. Those very theses don't necessarily stay valid "forever".

Reply to @msf:

But those withdrawal restrictions suggest not putting all of ones eggs in a single basket. Just as I might suggest an immediate annuity to provide only a base level of cash rather than everything one would possibly need, I would also suggest being conservative with TIAA Traditional.

You are an excellent educator; you're answering several of my questions. Thanks.
When you suggest "being conservative with TIAA Traditional," would that mean not putting your entire fixed income allocation it said product? Are you suggesting pairing (maybe 50/50) it with a something like a traditional bond fund instead of putting the entire bond allocation into the TIAA Traditional? (Roughly half my financial assets are in deferred accounts and that's where I'm planning to keep my "bond allocation," with TIAA Traditional and bond fund or whatever. I'll keep my equity funds in taxable accounts.)

"u.s. fiscal responsibility"
And I'm Santa Claus. Will the US ever act fiscally responsible? Ho Ho No.
"they are too important to fail"
Oy.
"Sears spin-offs"
Hopefully those that got the spin-off for Orchard Supply Company (which went to zero) sold it. And hopefully those who got the spin-off of Sears Hometown and Outlet (-44% in the last year) sold it. If those are examples of the kind of assets that Sears has to spin-off, maybe they can spin-off K-Mart next.
I'm waiting for the day that it becomes apparent that financial engineering will not make 1+1 = 4 at Sears. I don't short stocks, but Sears is one instance where I wish I would have when I questioned on fund alarm who in their right mind would own Sears when it was North of $100.
"Sears buybacks"
Um, at what price did those occur and how much?
"Headlines shout of Sears’ disastrous 2013 loss of $12 per share"
Uh, yeah - they should. So, we should ignore that and focus on the company's mediocrity (and that's being rather generous) in the recent past rather than the current awfulness?
"Fairholme research estimates that the fair value of sears’ net assets exceeds $150 per share"
No. Bruce Berkowitz is a brilliant investor, but I'm saying $150 a share for the Sears assets is absolutely ludicrous and these assets are becoming less compelling as the company becomes more irrelevant (and loses more money) by the day. Maybe the Sears insiders who are selling (Lampert seems to be the only one buying and even he had to sell recently due to redemptions in his hedge fund) should be told of this plan to deliver value.
==
What I'm most curious about is the Imperial Metals holding. I do think the Fannie/Freddie preferred situation is interesting, although the government is going to do what it's going to do.

FAIRHOLME FUNDS, INC. 2013 ANNUAL REPORTS

Our largest issuer position, at nearly 50% of assets, is in AIG common and warrants. Our second largest, at 15%, is in Bank of america common stock. Both are designated Global Systemically Important Financial Institutions. In other words, they are too important to fail, have significant value beyond their fortress-like balance sheets, and are capable of distributing healthy earnings to owners through dividends and/or buybacks of common stock. Yet, both trade at discounts to book value.
Headlines shout of Sears’ disastrous 2013 loss of $12 per share. A longer history shows that since the merger of Sears with Kmart, about 9 years ago, sears has distributed over $66 of cash per share via buybacks and spin-offs and has paid down $27 per share of a pension liability that is no different, in our view, from debt. Fairholme research estimates that the fair value of sears’ net assets exceeds $150 per share. If our research is accurate, we expect sears’ market price of $38 to increase to this value over time.
Two of our best performers during the period were Fannie Mae and Freddie Mac. Both are absolutely essential for uniquely-american, affordable mortgages. If you disagree, try getting a 30-year, sub-5% mortgage outside of the United States. In 2008, both companies agreed to U.S. conservatorship and extraordinarily harsh terms and conditions during a time of global crisis. The plan worked. Fannie and Freddie saved the day, repaid nearly every penny of cash received from the u.s. Treasury, and can look forward to resuming a prosperous future based just on the aging of assets held. However, many believe Fannie and Freddie will be victims of a government-sponsored expropriation that brings our country closer to a future conceived by George Orwell in his novel, 1984. We disagree.
On the macroeconomic front, u.s. fiscal responsibility and u.s. energy independence are on the horizon! economic progress will eventually lift interest rates, which will depress asset valuations. However, our banks and insurers should more than counter this weight with a lifting of margins between earning assets and paying liabilities. Overall - a net positive.The Fund’s portfolio prices remain a third below our growing estimates of intrinsic value... If history is any guide, expect these two measures to converge one day. For now, we believe, the difference between them to be a large margin of safety.

Ha!
Fingers-crossed.

I am not sure the financial industry is enthused about an instrument that generates no fees for the industry.

Interesting 6min Video posted recently by Financial Times:

The Price-to-Book Value discount of EM over the MSCI World has expanded to its steepest discount in a decade.

Reply to @cman: John Waggoner is one of the best financial writers around, and a friend of MFO who looks at our site on regular bases. On several occasions over the years he has taken ideas he's read at FundAlarm and MFO and woven them into a column.
Regards,
Ted.

This may not be a scam legally but it stinks to high heaven. The portfolio managers who seem like relatives never seem to have managed a mutual fund before or even worked in the financial industry. They work for a company called MediaBistro that organizes trade shows in 3D printing and are going to remain working there as CEO and BD executive. The lead portfilio manager also runs a 3D printing trade show which smacks of conflicts of interest with the companies they will be investing in...
I think it is simply a way for the family to get a revenue stream as long as they can attract resources or they are a front for whoever will be managing the fund. Have no idea what the regulators really do to approve new funds.
Stay away.

http://www.sec.gov/Archives/edgar/data/935015/000119312514024568/d665373d497.htm
497 1 d665373d497.htm ARTISAN PARTNERS FUNDS, INC.
ARTISAN PARTNERS FUNDS, INC.
SUPPLEMENT DATED FEBRUARY 1, 2014
TO THE PROSPECTUS OF ARTISAN PARTNERS FUNDS, INC.
DATED FEBRUARY 1, 2014
Artisan Global Value Fund is closing to most new investors effective as of the close of business on February 14, 2014. Until that time, the fund will remain open. The following replaces the text under the heading “Who Is Eligible to Invest in a Closed Artisan Fund?” on pages 61 – 62 in Artisan Funds’ prospectus in its entirety through February 14, 2014:
Artisan International Small Cap Fund, Artisan International Value Fund, Artisan Mid Cap Fund, Artisan Mid Cap Value Fund, Artisan Small Cap Fund and Artisan Small Cap Value Fund are closed to most new investors. The Funds do not permit investors to pool their investments in order to meet the eligibility requirements, except as otherwise noted below. Unless specified below, each individual in a pooled vehicle must meet one of the eligibility requirements set forth below.
If you have been a shareholder in a Fund continuously since it closed, you may make additional investments in that Fund and reinvest your dividends and capital gain distributions in that Fund, even though the Fund has closed, unless Artisan Partners considers such additional purchases to be not in the best interests of the Fund and its other shareholders. An employee benefit plan that is a Fund shareholder may continue to buy shares in the ordinary course of the plan’s operations, even for new plan participants.
You may open a new account in a closed Fund only if that account meets the Fund’s other criteria (for example, minimum initial investment) and:
• you are already a shareholder in the closed Fund (in your own name or as beneficial owner of shares held in someone else’s name) (for example, a nominee, custodian or omnibus account holding shares for the benefit of an investor would not be eligible to open a new account for its own benefit or for the benefit of another customer, but the investor would be eligible to open a new account in that Fund);
• you are a shareholder with combined balances of $100,000 in any of the Artisan Funds (in your own name or as beneficial owner of shares held in someone else’s name);
• you receive shares of the closed Fund as a gift from an existing shareholder of the Fund (additional investments generally are not permitted unless you are otherwise eligible to open an account under one of the other criteria listed);
• you are transferring or “rolling over” into a Fund IRA account from an employee benefit plan through which you held shares of the Fund (if your plan doesn’t qualify for rollovers you may still open a new account with all or part of the proceeds of a distribution from the plan);
• you are purchasing Fund shares through a sponsored fee-based program and shares of the Fund are made available to that program pursuant to an agreement with Artisan Funds or Artisan Partners Distributors LLC and Artisan Funds or Artisan Partners Distributors LLC has notified the sponsor of that program, in writing, that shares may be offered through such program and has not withdrawn that notification;
• you are an employee benefit plan or other type of corporate or charitable account sponsored by or affiliated with an organization that also sponsors or is affiliated with (or is related to an organization that sponsors or is affiliated with) another employee benefit plan or corporate or charitable account that is a shareholder of the Fund;
• you are a client (other than an employee benefit plan) of an institutional consultant and Artisan Funds or Artisan Partners Distributors LLC has notified that consultant in writing that you may invest in the Fund;
• you are an employee benefit plan that is a client of an institutional consultant that has an existing business relationship with Artisan Partners or Artisan Funds and Artisan Funds or Artisan Partners Distributors LLC has notified that consultant in writing that the plan may invest in the Fund (only available for investments in Artisan Mid Cap Fund, Artisan Mid Cap Value Fund, Artisan Small Cap Fund and Artisan Small Cap Value Fund);
• you are a client (other than an employee benefit plan) of a financial advisor or a financial planner, or an affiliate of a financial advisor or financial planner, who has at least $500,000 of client assets invested with the Fund or at least $1,000,000 of client assets invested with Artisan Funds at the time of your application;
• you are a client of Artisan Partners or you have an existing business relationship with Artisan Partners and, in the judgment of Artisan Partners, your investment in a closed Fund would not adversely affect Artisan Partners’ ability to manage the Fund effectively; or
• you are a director or officer of Artisan Funds, or a partner or employee of Artisan Partners or its affiliates, or a member of the immediate family of any of those persons.
--------------------------------------------------------------------------------
A Fund may ask you to verify that you meet one of the guidelines above prior to permitting you to open a new account in a closed Fund. A Fund may permit you to open a new account if the Fund reasonably believes that you are eligible. A Fund also may decline to permit you to open a new account if the Fund believes that doing so would be in the best interests of the Fund and its shareholders, even if you would be eligible to open a new account under these guidelines.
The Funds’ ability to impose the guidelines above with respect to accounts held by financial intermediaries may vary depending on the systems capabilities of those intermediaries, applicable contractual and legal restrictions and cooperation of those intermediaries.
Call us at 800.344.1770 if you have questions about your ability to invest in a closed Fund.
Please Retain This Supplement for Future Reference

Well, the U.S. at the start of the day is gathering the money flows from other places, eh? Not a highly motivated bunch regarding flight to safety as the U.S. Treasury issues are just so-so as well as some other investment grade bonds; although HY bonds are happy at the moment. On the EM front: Turkey is having a heck of a time with social matters. Argentina continues to get some press, too; regarding foreign payments and all other matters related to money both internal and external. Argentina has many long standing problems with the "trust" issue relative to how the "government ???" there does things. China, don't know what to mention......I wish that I had some folks there I could call; but there is so much noise and other data from the mainland; I'll defer to those who think they know the reality. 'Course China, in theory, needs to be watched because of size and impact upon some other countries regarding natural resources in particular. I would think their wealth funds and companies welcome the drawdowns (prices) in some areas for an opportunity to buy more resource companies.
Europe a bit strange at 10 am EST
England, Belgium and Austria ??? Some folks must still like France.
Don't know about the first two; but from several years ago the Austrian banks were reported to have more toxic stuff in their books than most Euro banks. Perhaps there are still some more unknowns there.
Anyway, the short story appears to be a normal rotation of hot monies. We'll have to wait to find if there is more to the profit taking elsewhere (U.S.). Overall, if the burndown continues in the EM's, and more in Europe and then begins again here; our house would then have to take a very close view of more serious profit taking in our equity market by the big financial houses. The stages are kinda set, eh?; but we have not seen who all of the actors will be upon the real stage; nor are they on the "red carpet area", at this time.
Hey, I'm too cold from being outside moving more snow. Maybe I'm just having a brain freeze with this stuff above.
Take care of you and yours,
Catch

Howdy mrdarcey,
You noted: " In accumulation phase, asset allocation is 90% of the battle. MFO is great for phase two -- picking funds, particularly risk aware funds -- but @cman is correct, people don't really discuss AA much here."
My memory sure isn't what it was in the past; but AA has been discussed here if it was part of a question/answer thread so related. I, of course; don't have clue as to whether cman was a member (a different name) of MFO since the move from FundAlarm in April, 2011; but the current tenure is from Dec. 2013. If this is the case, he/she and other new members here would not be aware of the intermixed discussions regarding AA, previous.
A common circumstance for some queries here is thoughts regarding a particular sector of funds. Responses may be directed as needed based upon other's experience with a particular fund, be it active, passive, etf or index.
Such a question will not likely evolve into an AA discussion with/to the poster. I may only assume the poster is satisfied with their AA otherwise; but wants to allocate to another sector, too; and is requesting thoughts from others.
If I pose a question about the pros and cons of "x" number of funds that invest in the EM sector; I don't expect a question as to whether our house's AA is in proper order. The answer would be that it is, at this time; based upon our risk/reward and all other financial circumstances for a total picture.
My inflation adjusted 2 cents worth.
Take care of you and yours,
Catch

Hi Mark. That's always intrigued me too. Total views for all posts I think I get. Likely, a great many stumble upon MFO while researching various other financial issues. Your second point is more difficult to explain. Maybe the views expressed here do serve to lend direction to the larger multitude "lost in the wilderness". A less glowing appraisal would be that they may represent some sort of "contrary indicator" to other investors.
Let's hope it's the former :-)

Reply to @hank:
Being overweight cash might not be a bad thing should the market continue pulling back. Having a cash hord, say 25%, could indeed become a blessing. I am holding 20+% myself and my broker thinks that is too much. Told him perhaps so if I was in the accumulation stage of my life but my little fife was now built; and, I considered it part of my financial survial plan. And, besides it provides me an opportunity to venture into other areas beside the markets that I might profit in. I have some metorites that were found years ago on one of the family farms that sit on an old Indian trading path that ran form Richmond to Charleston. Although, I don't own this land I have access to it and I might just see if more of them can be found through a light minning and prospecting process. Thinking of taking an old small utility trailer putting a generator on it to power an electromatic field and then pulling this behind a tractor with a plow and or disk that turns the soil. With this, since most metorites are maganetic bingo I've got myself a metorite finder plus it will collect other iron objects too. I got some neat things I plan to venture into this year as I start my retirement. Besides the field needs to be plowed anyway. In the past we found them as kids walking behind the tractor or riding on top of the plow or disk just through visual sight. My grand father would run the tractor at a slower speed when we did this and he only tolerated us for so long. If he only new what metorites were worth today ... Well, I think he would have had a different perspective.
Old_Skeet