ReprintedReprinted by byReprinted permission permission by ofpermission of Morningstar, Morningstar, of Morningstar, January January 2020 2020 January 2020 Reprinted by permission of Morningstar, January 2020

TheThe Thrilling Thrilling 34 34 TheThe ThrillingThrilling 3434 OnlyOnly 34 34Only funds funds 34 passed passedfunds passedall all my my tests. tests.all my tests. Only 34 funds passed all my tests.

12-30-201912-30-201912-30-2019 | |by by Russel Russel | by Kinnel KinnelRussel Kinnel 12-30-2019 | by Russel Kinnel EveryEvery year yearEvery I Iwrite write year about aboutI write the the about Thrilling Thrilling the Thrilling 34--although 34--although 34--although the the number number the number However,However,However, because because because I Ialready already I alreadyset set the the bar setbar at theat cheapest cheapest bar at cheapest quintile, quintile, quintile, it it isn’t isn’t it isn’t variesvariesEvery slightly yearslightlyvaries I write each slightlyeach about time. time. each theThe The time. Thrillingidea idea The is is to toidea34--although focus focus is to on on focus the the the most moston number the most likelylikelyHowever, to to likelyknock knock because to many many knock I of alreadyof many this this list’s list’s ofset this thecandidates candidates list’s bar atcandidates cheapest out out of of the the outquintile, box. box. of the it box. isn’t importantimportantvaries slightlyimportant factors factors each and factorsand time. let let them andthemThe letidea do do them the theis to weeding weedingdo focus the weedingon for for the me. me. most The forThe me.goal goal The is is goallikely is to knock many of this list’s candidates out of the box. aaimportant short short list alist short offactors of outstanding outstanding list andof outstanding let themfunds funds doaccessible accessible funds the weeding accessible to to individual individual for tome. individual Theinvestors. investors. goal investors. is YouYou may mayYou recall recall may that that recall I Idetailed detailed that I detailed past past performance performance past performance of of prior prior lists oflists prior earlier earlier lists earlier ThisThisa short isn’t isn’t Thislist a a list of listisn’t outstandingfor for a huge hugelist for pension pension huge funds pensionfunds. funds.accessible funds. to individual investors. ininYou the the may year yearin recallthe here. here. year that In In here.all allI detailedsix six In lists lists all over sixpastover lists the performancethe over years, years, the at at years, least leastof prior attwo two least lists thirds thirds earliertwo or or thirds or This isn’t a list for huge pension funds. moremorein the of of year morethe the fundshere. funds of the Inoutperformed outperformed fundsall six outperformedlists over peers. peers. the And years,Andpeers. in in fiveat fiveAnd least outinout five two ofof six sixthirdsout lists, lists, of or six lists, YouYou can can Yoube be awfullycanawfully be pickyawfully picky when when picky you you when have have you 8,000 8,000 have funds funds 8,000 to to funds choose choose to chooseaa more majority majority ofa themajority outperformed outperformed funds outperformed outperformed their their benchmarks. benchmarks. their peers. benchmarks. And Of Of in course, course,five Of out therecourse, there of six are are lists,there no no are no from.from.You can The Thefrom. be criteria criteria awfully The have criteriahave picky largely largely havewhen been largelybeen you the havethe been same, same, 8,000 the with with same,funds some some towith chooseminor minor some minorguaranteesguaranteesa majorityguarantees outperformedthat that this this that list list will thiswill their match listmatch benchmarks. will the thematch prior prior the Oflists’ lists’ priorcourse, performance. performance. lists’ there performance. are no tweakstweaksfrom. The over tweaksover criteria the the over years. years. have the largely years. been the same, with some minor guarantees that this list will match the prior lists’ performance. tweaks over the years. InIn the the case caseIn the of of funds casefunds of where where funds multiple multiplewhere multiple share share classes classes share qualified, classesqualified, qualified, I I I HereHere are areHere the the tests aretests the I Iused usedtests this thisI used time: time: this time: chosechoseIn the the thecasechose one one of the with fundswith one the the where with lowest lowest the multiple minimum. minimum.lowest share minimum. For For classes example, example, For qualified, example, Vanguard’s Vanguard’s I Vanguard’s Here are the tests I used this time: AdmiralAdmiralchose the Admiralshares shares one and withandshares Investor Investorthe and lowest Investor shares shares minimum. qualified qualifiedshares For qualified forexample,for thethe ninefornine Vanguard’s the fundsfunds nine funds 1.1. ExpenseExpense1. Expense ratio ratio in in the ratiothe category’s category’s in the category’s cheapest cheapest cheapest quintile. quintile. quintile. thatthatAdmiral made madethat shares the the made list, list, and thebut but Investor list,because because but shares because the the investor investorqualified the investorshare share for theclass class share nine also also classfunds also 2.2.1. ManagerManagerExpense2. Manager ratioinvestment investment in theinvestment category’sof of more more ofthan than morecheapest $1 $1 thanmillion million quintile. $1 in millionin the the fund. fund. in the fund.qualified,qualified,that madequalified, I Ithe usedused list, the theI butused investor investor because the investor shareshare the class.investor class.share class. share class also 3.3.2. MorningstarMorningstarManager3. Morningstar investment Risk Risk rating rating Risk of below morebelow rating thanthe thebelow High High$1 millionthe level. level. High in level.the fund. qualified, I used the investor share class. 4.4.3. MorningstarMorningstar4. Morningstar Analyst AnalystRisk rating AnalystRating Rating below of ofRating Bronze Bronzethe Highof orBronzeor higher. level.higher. or higher. I Ioften often get getI often questions questions get questions about about this this about list list that thisthat listimply imply that I Ishould implyshould I have shouldhave have 5.5.4. ParentParentMorningstar5. rating ratingParent better Analystbetter rating than than betterRating average/neutral. average/neutral. than of Bronze average/neutral. or higher. chosenchosenI often fund chosengetfund questions B B over fundover fund fundB about over A. A. fundTo Tothis be be listA. clear, clear, To that be it’s it’s implyclear, a a series series Iit’s should aof of series screens. screens. have of screens. I’m I’m I’m 6.6.5. ReturnsReturnsParent6. ratingReturnsabove above better the the above fund’s fund’s than the benchmark average/neutral. benchmarkfund’s benchmark over over the the over manager’s manager’s the manager’s notnotchosen picking pickingnot fund the pickingthe B funds overfunds the fund and and funds A.there there To and beis is thereno clear,no set set is it’snumber numberno a set series numberof of funds. offunds. screens. of Over Overfunds. I’m Over 6. tenuretenureReturns for fortenure above a a minimum minimum for the a fund’sminimum of of five five benchmark years.ofyears. five In In years. over thethe casethe caseIn the manager’s ofof allocationcaseallocation of allocation thethenot years years pickingthe it it hasyears hasthe bounced fundsbounced it has and bounced from from there the the isfrom 20s 20sno thetoset to the thenumber20s 40s. 40s. to the of 40s.funds. Over funds,funds,tenure I Iforfunds,also also a used minimumused I also category category used of fivecategory averages averages years. averages Inbecause because the case because benchmarks benchmarks of allocation benchmarks the years it has bounced from the 20s to the 40s. arearefunds, often often Iare also pure pure often used equity equity pure category or orequity bond bond averages orand and bond therefore therefore andbecause therefore not not benchmarks a a good good not test. atest. good Mytest.My last last Mynote note last is is that notethat I Iisincluded included that I included funds funds closed closed funds to toclosed new new investors toinvestors new investors 7.7. MustMustare7. often be beMust a a pureshare share be equity aclass class share oraccessible accessible classbond accessibleand to to therefore individual individual to individual not investors investors a good investors test. becausebecauseMy lastbecause theirnote their isshareholders shareholders thattheir I shareholdersincluded want want funds to to wantknow know closed to if if knowthey theyto new still stillif theyinvestors pass pass still the the pass test. test. the test. 7. withwithMust a a beminimum minimumwith a share a minimum investment investmentclass accessible investment no no greater greater to noindividual thangreater than $50,000. $50,000. investorsthan $50,000. because their shareholders want to know if they still pass the test. 8.8. NoNowith 8.funds funds a minimumNo of of funds funds. funds. investmentof funds. no greater than $50,000. HereHere then thenHere are are then the the Thrilling areThrilling the Thrilling 34 34 in in reverse reverse 34 in alphareverse alpha order. order. alpha order. 8. No funds of funds. Here then are the Thrilling 34 in reverse alpha order. TheThe only onlyThe real real only change change real changeto to the the above above to the list list above is is that that list I Iisused used that prospectus prospectusI used prospectus Vanguard VanguardVanguard adjustedadjustedThe onlyadjusted operating realoperating change operating expense expense to the expense ratio. aboveratio. I Ilistdidn’t didn’tratio. is that make Imake didn’t I used the the make switch switchprospectus the just justswitch justVanguard VanguardVanguard got got nine nine got funds funds nine on on funds the the list, list,on the the list,most most the of of mostany any firm. firm.of any AsAs firm. As becausebecauseadjustedbecause it’s it’soperating a a catchy catchy it’s expensea name. name.catchy It’s It’sratio.name. the the I measure didn’tIt’smeasure the make measure we we theuse use switchfor wefor our useour just for our VanguardiansVanguardiansVanguardVanguardians got like ninelike to to funds say, say,like it’s it’stoon say,not thenot active it’slist,active not the versus versus active most passive, ofpassive,versus any firm.passive, it’s it’s low lowAs cost it’scost low cost analystanalystbecause ratings, analystratings, it’s a catchyratings,too. too. It It name.includes includes too. It It’s includes rolled rolled the measure up up rolled fund-of-funds fund-of-funds upwe fund-of-funds use for fees fees our but but fees butversusversusVanguardians high highversus cost. cost. highlike The The to cost. list say,list of The ofit’s nine nine listnot features of featuresactive nine versusfeatures active active passive, funds funds active with with fundsit’s fees lowfees with costas as fees as doesdoesanalyst not notdoes ratings, include include not too.transactionalinclude transactional It includes transactional costs costs rolled such such upcosts fund-of-fundsas as suchleverage leverage as leverage or or feesshorting. shorting. but or shorting. lowlowversus as as 21 21lowhigh basis basis as cost. 21 points. points. basisThe list When points.When of nine a a Whenfund fund features is isa that fundthat active cheap, cheap,is that funds it’s cheap,it’s a witha lot lot it’s easier easierfees a lot as easier ThisThisdoes avoids avoids notThis include an anavoids apples-to-oranges apples-to-oranges transactional an apples-to-oranges costs comparison. comparison. such comparison. as leverage or shorting. totolow deliver deliver as to21 good delivergoodbasis performance performancepoints. good performance When and and a fundbeat beat and isthe the that beat benchmark. benchmark. cheap, the benchmark. it’s a lot easier This avoids an apples-to-oranges comparison. to deliver good performance and beat the benchmark. AA more more subtle Asubtle more change changesubtle changeis is that that we weis thathave have we moved moved have to movedto the the enhanced enhanced to the enhanced VanguardVanguardVanguard Wellington Wellington Wellington ()VWELX ()VWELX ()VWELX leads leads the the leads way way the at at just wayjust 0.25% 0.25%at just for for0.25% a a for a analystanalystA more ratings analystratingssubtle methodology,change ratingsmethodology, methodology,is that which whichwe have rates rateswhich moved funds funds rates to on on thefunds a a shareenhanced share on aclass class share classclassicclassicVanguard balanced classicbalanced Wellington balanced fund fund run ()VWELXrun fund by by a arun strong strongleads by a teamthe teamstrong way at at team Wellington. atWellington. just at 0.25% Wellington. It’s It’s for so so a It’s so levellevelanalyst and andlevel ratings has has and resulted resulted methodology, has resulted in in some some which inrating rating some rateschanges. changes. rating funds changes. In In on particular, particular, a share In particular, classthe the theeasyeasyclassic to to own easybalancedown that tothat own Ifund Irecommend recommend that run I recommend by a it itstrong just just about about teamit just as as atabout much muchWellington. as as as much any any It’sother otheras soany other ratingsratingslevel and adaptation ratingsadaptation has resulted adaptation has has led inled some tohas to downgrades downgrades led rating to downgrades changes. in in low-return low-return In inparticular, low-return categories categories the categories fund.fund.easy And, toAnd,fund. own no, no, thatAnd, it it isn’t isn’t I no,recommend closed--you closed--youit isn’t closed--you it just just have abouthave just to toas haveinvest invest much to directly directly asinvest any directlywith otherwith with suchsuchratings as as suchshort-termadaptation short-term as short-term bond hasbond led and and bondto munis, munis,downgrades and because munis,because in because our low-returnour methodology methodology our categories methodology is is Vanguard Vanguardfund.is And,Vanguard to to no, get get it in. in. isn’tto get closed--you in. just have to invest directly with particularlyparticularlysuch asparticularly short-term unforgiving unforgiving unforgivingbond of of and middling middling munis, of middling fees fees because in in low-return feeslow-return our in methodologylow-return categories. categories. categories. is Vanguard to get in. particularly unforgiving of middling fees in low-return categories. Reprinted by permission of Morningstar, January 2020 Reprinted by permission of Morningstar, January 2020

Vanguard Wellesley Income (VWINX) is closely related to Seafarer Overseas Growth and Income (SIGIX) has a $25,000 Wellington.The Thrilling It just has more 34bonds and more income, though less minimum for this share class, so don’t let the institutional tag return potential. throw you. Andrew Foster has done a fine job here and at previous Only 34 funds passed all my tests. funds he ran for Matthews. The fund did have a setback in the Speaking of funds I recommend the heck out of, Vanguard recent departure of comanager InBok Song. Primecap (VPMCX) and Vanguard Primecap Core (VPCCX) are two of the best growth funds I know of. They are both closed, Harbor Capital Appreciation (HACAX) is likewise an accessible but12-30-2019 their slightly | by Russel pricier Kinnelcousins Primecap Odyssey Stock (POSKX) institutional-labeled fund. Here the Jennison team makes the most and Primecap Odyssey Growth (POGRX) are both open to new from large growth rallies like the one we’ve just experienced. investors.Every year Senior I write analyst about theAlec Thrilling Lucas just 34--although recorded athe video number However, because I already set the bar at cheapest quintile, it isn’t discussingvaries slightly Primecap each time. that Theyou ideacan watch is to focus here. on the most Fidelitylikely to knock many of this list’s candidates out of the box. important factors and let them do the weeding for me. The goal is Fidelity got four funds on the list this time. Like T. Rowe, many of Vanguarda short list GNMA of outstanding (VFIJX) delivers funds accessible straightforward to individual GNMA investors.exposure itsYou active may recallfunds thatfall just I detailed short on past fees. performance of prior lists earlier forThis 0.21% isn’t aif listyou for invest huge $3,000 pension and funds. 0.11% if you invest $50,000. in the year here. In all six lists over the years, at least two thirds or Fidelitymore of Total the fundsBond outperformed(FTBFX) is a great peers. bond And fund in five that outmixes of six lists, VanguardYou can be Explorer awfully (VEXPX) picky when delivers you veryhave boring 8,000 fundssmall growthto choose aggressiona majority outperformedand caution. Ford their O’Neil benchmarks. has the Offlexibility course, tothere position are no exposurefrom. The forcriteria 0.46% have and largely a $3,000 been investment. the same, with some minor thisguarantees fund more that or this less list aggressively will match on the credit prior risk.lists’ But performance. it also boasts tweaks over the years. the strong issue selection we’ve come to expect from Fidelity’s Vanguard Equity-Income (VEIPX) is a standout in the equity-income bondIn the funds. case of funds where multiple share classes qualified, I worldHere are with the excellent tests I used management this time: and a solid yield. chose the one with the lowest minimum. For example, Vanguard’s FidelityAdmiral Select shares Health and Investor Care’s (FSPHX)shares qualified Morningstar for the Analyst nine Ratingfunds Vanguard1. Expense Dividend ratio Growth in the category’s(VDIGX) has cheapest a great butquintile. simple wasthat recentlymade the upgraded list, but becauseto Gold. We’rethe investor fans of share the deep class team also strategy.2. Manager It aims toinvestment find companies of more that than are $1 likely million to inraise the their fund. supportingqualified, Ithis used fund the andinvestor it’s nice share to getclass. it at a reasonable fee. dividends3. Morningstar over time. Risk That’s rating very below basic, thebut Highcompanies level. that are likely4. toMorningstar raise their dividends Analyst Rating have to of have Bronze healthy or higher. balance sheets FidelityI often getLow-Priced questions Stock about (FLPSX) this list is thethat same imply brilliant I should fund have it’s and5. goodParent growth rating prospects, better than too, average/neutral.and that makes for a fund with alwayschosen been fund underB over Joel fund Tillinghast. A. To be clear, it’s a series of screens. I’m good6. defensiveReturns abovecharacteristics the fund’s in benchmarkrecessions. over the manager’s not picking the funds and there is no set number of funds. Over tenure for a minimum of five years. In the case of allocation Fidelitythe years Diversified it has bounced International from the (FDIVX) 20s to thehas 40s.been a nice steady T. Rowefunds, Price I also used category averages because benchmarks performer since Bill Bower took over in 2001. He looks for quality I’m a bigare fan often of T. pure Rowe equity Price, or but bond many and of therefore its funds not are a just good test. growthMy last names note is and that that I included has made funds the closed fund into to new a mild-mannered investors outside7. Must the cheapest be a share quintile class accessibleand so only to three individual qualify. investors Still, they winner.because their shareholders want to know if they still pass the test. are amongwith the a minimum best. investment no greater than $50,000. 8. No funds of funds. DodgeHere then & Cox are the Thrilling 34 in reverse alpha order. T. Rowe Price New Asia (PRASX) is a new entrant to the list Dodge & Cox is another firm that was made for this list. (American becauseThe only managerreal change Anh to Lu the passed above the list five-yearis that I used tenure prospectus mark a few andVanguard Vanguard are the others.) Dodge has long-tenured managers, monthsadjusted ago. operating We like expense Lu and theratio. team I didn’t of analysts make the supporting switch just this lowVanguard fees, and got nearlynine funds all of on its themanagers list, the invest most moreof any than firm. $1 Asmillion fund.because Its growth-orientedit’s a catchy name. strategy It’s the looks measure like many we use other for T.our Rowe ofVanguardians their own money like to in say, their it’s funds. not active So, on versus a fundamental passive, it’s basis low you cost funds’analyst emphasis ratings, too. on earningsIt includes growth rolled and up fund-of-fundsbarriers to entry. fees but haveversus funds high that cost. are The quite list ofconsistent nine features year overactive year, funds even with if their fees as does not include transactional costs such as leverage or shorting. returnslow as 21can basis be buffeted points. When when a value fund ishits that a rough cheap, patch. it’s a lot easier T.This Rowe avoids Price an Mid-Cap apples-to-oranges Value (TRMCX) comparison. is a disciplined value fund to deliver good performance and beat the benchmark. that has delivered great results over David Wallach’s 19 years. Dodge & Cox Stock (DODGX), Dodge & Cox Income (DODIX), and However,A more subtle disciplined change value is that has we been have a movedtough place to the to enhanced be as the DodgeVanguard & Cox Wellington Global Stock ()VWELX (DODWX) leads are the well-known way at just standouts0.25% for a fund’sanalyst weak ratings three-year methodology, results which indicate. rates But funds I see on plenty a share of reasonsclass withclassic teams balanced of great fund managers. run by a strong team at Wellington. It’s so tolevel hold and on has at this resulted closed in fund. some rating changes. In particular, the easy to own that I recommend it just about as much as any other ratings adaptation has led to downgrades in low-return categories Dodgefund. And, & Cox no, Global it isn’t Bond closed--you (DODLX) just is the have new to kidinvest on thedirectly block. with T.such Rowe as short-termPrice Mid-Cap bond Growth and munis, (RPMGX) because has been our methodology in clover in this is ItsVanguard rating was to get recently in. upgraded to Silver as we’ve become more growthparticularly rally. unforgiving Brian Burghuis of middling has found fees winners in low-return upon winners categories. at comfortable that it could successfully apply its approach from the this closed fund. Income fund to global bonds and currencies. Launched five and a Reprinted by permission of Morningstar, January 2020 Reprinted by permission of Morningstar, January 2020

half years ago, the fund has produced excellent results but still has American Funds Global Balanced (GBLAX) is a relative newcomer lessThe than Thrilling$1 billion in assets. 34 launched eight years ago. The fund targets a 60/40 stock to bond allocation. Many of its peers make top-down calls, but this one BairdOnly 34 funds passed all my tests. focuses on issue selection, which makes sense for American. Baird’s institutional funds carry a $25,000 minimum, thus making my hurdle. The Milwaukee-based team has grown on us, leading American Funds Capital World Growth & Income (CWGIX) takes us to upgrade the trio of bond funds to Gold. Baird Aggregate Capital’s dividend skills on the global stage and the result is a fine Bond12-30-2019 (BAGIX), | by Baird Russel Short-Term Kinnel Bond (BSBIX), and Baird Core Plus core holding. Bond (BCOIX) lean toward the cautious side of their peer groups yetEvery still year produce I write solid about returns. the Thrilling The Core 34--although Plus fund is the obviously number the AmericanHowever, Fundsbecause American I already Balanced set the bar (ABALX) at cheapest is a massive quintile, $157 it isn’t mostvaries aggressive slightly each of thetime. three The but idea it isstill to hasfocus good on therisk-awareness most to billionlikely tofund knock with many six equity of this managers list’s candidates and one out balanced of the box. manager keepimportant it from factors going and too letfar themout on do a thelimb. weeding for me. The goal is making allocation decisions. The main attraction remains stock a short list of outstanding funds accessible to individual investors. selectionYou may recalland defensive that I detailed characteristics past performance combined of with prior low lists fees. earlier BairdThis isn’t MidCap a list (BMDIX), for huge thepension lone funds.equity entrant from Baird, is a in the year here. In all six lists over the years, at least two thirds or solid pick, too. However, as the Bronze rating indicates, we don’t Americanmore of the Funds funds AMCAP outperformed (AMCPX) peers. seeks And out incapital five appreciationout of six lists, haveYou can it at be the awfully same pickylevel aswhen the youfirm’s have bond 8,000 funds. funds to choose anda majority it has doneoutperformed a fine job their of it. benchmarks. That mandate Of is course, broader there than are large no from. The criteria have largely been the same, with some minor growthguarantees and that’sthat this held list it willback match somewhat the prior in this lists’ growth-driven performance. Americantweaks over Funds the years. rally. But there’s no reason it should depress returns for the next Capital Group’s long-term focus dovetails nicely with the long- 10In theyears. case Over of fundslongest-tenured where multiple manager share Claudia classes Huntington’s qualified, I 23 termHere focusare the of teststhis screening I used this exercise. time: Managers and analysts years,chose returnsthe one have with beenthe lowest excellent. minimum. For example, Vanguard’s tend to make a career of their time at the firm. You can see that in Admiral shares and Investor shares qualified for the nine funds the1. soberExpense way the ratio funds in the are category’s managed, cheapest the long tenures,quintile. and the that made the list, but because the investor share class also sizable2. Managerinvestment investment managers of make more in than their $1 own million funds. in theCosts fund. are qualified, I used the investor share class. reasonable,3. Morningstar too. (You Risk can rating get American below the funds High for level. no-load in most NTF4. supermarkets.)Morningstar Analyst Rating of Bronze or higher. I often get questions about this list that imply I should have 5. Parent rating better than average/neutral. Thechosen information, fund B data,over fundanalyses A. To and be opinions clear, it’s contained a series herein of screens. do not I’m American6. Returns Funds above New thePerspective fund’s benchmark (ANWPX) illustratesover the manager’s how widely constitutenot picking investment the funds advice and thereoffered is noby setMorningstar, number areof funds.provided Over the firm’stenure analyst for a andminimum manager of fivestaff years. reaches. In the They’ve case oflong allocation had solelythe years for informational it has bounced purposes from andthe therefore20s to the are 40s. not an offer to officesfunds, around I also the used globe category and brought averages excellent because fundamental benchmarks buy or sell a security, and are not warranted to be correct, complete or accurate. Except as otherwise required by law, Morningstar shall researchare to often markets pure near equity and or far. bond Not and many therefore firms havenot athe good depth test. My last note is that I included funds closed to new investors not be responsible for any trading decisions, damages or other losses to 7.run aMust great be world-stock a share class fund, accessible but they to do. individual investors resultingbecause from, their or shareholders related to, this want information, to know data, if they analyses still pass or opinions the test. with a minimum investment no greater than $50,000. or their use. Opinions expressed are as of the date written and are American8. No Fundsfunds Incomeof funds. Fund of America (AMECX) highlights subjectHere then to change are the without Thrilling notice. 34 in Investment reverse alpha research order. is produced and another strength: dividend investing. The firm has a variety issued by subsidiaries of Morningstar, Inc. including, but not limited to, ofThe dividend-oriented only real change funds to the that above produce list is thatsolid I income used prospectus without MorningstarVanguard Research Services LLC, registered with and governed by the sacrificingadjusted operating returns expenseor taking ratio.bad risks. I didn’t That make focus the does switch mean just the U.S.Vanguard Securities got and nine Exchange funds on Commission. the list, the most of any firm. As fundbecause has it’sfaced a catchy recent name. headwinds It’s the due measure to its tilt we toward use for value our and Vanguardians like to say, it’s not active versus passive, it’s low cost overweightinganalyst ratings, in too. foreign It includes equities. rolled But upat somefund-of-funds point, the fees market but versus high cost. The list of nine features active funds with fees as willdoes rotate not include in its favor. transactional costs such as leverage or shorting. low as 21 basis points. When a fund is that cheap, it’s a lot easier This avoids an apples-to-oranges comparison. to deliver good performance and beat the benchmark. Bronze-rated American Funds Growth Fund of America (AGTHX) is quiteA more diversified subtle change due to is its that large we haveasset movedbase. It tospreads the enhanced assets out Vanguard Wellington ()VWELX leads the way at just 0.25% for a amonganalyst moreratings managers methodology, than it which typically rates does funds and on that a share means class a classic balanced fund run by a strong team at Wellington. It’s so ratherlevel and diffuse has resulted portfolio. in So,some this rating is not changes. a thrilling In growth particular, fund the but easy to own that I recommend it just about as much as any other oneratings with adaptation good fundamentals has led to nonetheless.downgrades in low-return categories fund. And, no, it isn’t closed--you just have to invest directly with such as short-term bond and munis, because our methodology is Vanguard to get in. particularly unforgiving of middling fees in low-return categories. Reprinted by permission of Morningstar, January 2020 Reprinted by permission of Morningstar, January 2019

Bench- Pro- The Thrilling 34 Morn- mark or spectus ingstar Morn- Mgr Cumula- Category Adj. Op. Only 34 funds passed all myClosed tests. to Analyst ingstar Tenure tive Tenure Avg Re- Expense Min. In- Name Ticker New Inv Rating Category (Longest) Return turn Ratio vestment American Funds Large 12-30-2019 | by Russel Kinnel AMCAP AMCPX No Gold Growth 23.58 872 672 0.66 250 EveryAmerican year I write about the Thrilling 34--although the numberAlloca- However, because I already set the bar at cheapest quintile, it isn’t variesFunds slightly each time. The idea is to focus on the mosttion--50% likely to knock many of this list’s candidates out of the box. importantAmerican factors and let them do the weeding for me. Theto 70% goal is aBalanced short list Aof outstandingABALX fundsNo accessibleSilver to individualEquity investors. 20.92You may recall516 that I detailed267 past performance0.57 of prior250 lists earlier ThisAmerican isn’t a list for huge pension funds. in the year here. In all six lists over the years, at least two thirds or Funds Cap- more of the funds outperformed peers. And in five out of six lists, Youital canIncome be awfully picky when you have 8,000 funds to Worldchoose a majority outperformed their benchmarks. Of course, there are no from.Bldr AThe criteriaCAIBX have largelyNo been the same,Silver with someAllocation minor 27.92guarantees that898 this list will535 match the prior0.58 lists’ performance.250 tweaksAmerican over the years. Funds Cap- In the case of funds where multiple share classes qualified, I Hereital World are the tests I used this time: World chose the one with the lowest minimum. For example, Vanguard’s Gr&Inc A CWGIX No Gold Large Stock 13.83Admiral shares148 and Investor127 shares qualified0.76 for the nine250 funds American1. Expense ratio in the category’s cheapest quintile. that made the list, but because the investor share class also Funds2. Manager investment of more than $1 million in the fund. qualified, I used the investor share class. Global3. Morningstar Bal- Risk rating below the High level. World anced4. Morningstar A GBLAX Analyst RatingNo of BronzeSilver or higher. Allocation 8.83I often get questions73 about43 this list that imply0.84 I should250 have 5. Parent rating better than average/neutral. chosen fund B over fund A. To be clear, it’s a series of screens. I’m American 6. Returns above the fund’s benchmark over the manager’s not picking the funds and there is no set number of funds. Over Funds tenure for a minimum of five years. In the case of allocation the years it has bounced from the 20s to the 40s. Growth funds, I also used category averages because benchmarks Fund of Large are often pure equity or bond and therefore not a good test. My last note is that I included funds closed to new investors Amer A AGTHX No Bronze Growth 26.08 1,447 1,053 0.65 250 7. Must be a share class accessible to individual investors because their shareholders want to know if they still pass the test. Americanwith a minimum investment no greater than $50,000.Alloca- Funds8. No In- funds of funds. tion--70% Here then are the Thrilling 34 in reverse alpha order. come Fund to 85% Theof Ameronly realA changeAMECX to the aboveNo list is thatSilver I used prospectusEquity 27.92Vanguard 942 604 0.58 250 adjustedAmerican operating expense ratio. I didn’t make the switch just Vanguard got nine funds on the list, the most of any firm. As becauseFunds New it’s a catchy name. It’s the measure we use for our Vanguardians like to say, it’s not active versus passive, it’s low cost analystPerspective ratings, too. It includes rolled up fund-of-funds feesWorld but versus high cost. The list of nine features active funds with fees as doesA not includeAN-WPX transactionalNo costs such asGold leverage orLarge shorting. Stock 19.00low as 21 basis343 points. When181 a fund is that0.76 cheap, it’s250 a lot easier ThisBaird avoids an apples-to-oranges comparison. Interme- to deliver good performance and beat the benchmark. Aggregate diate Core ABond more Inst subtle changeBAGIX is thatNo we have movedGold to the enhancedBond 19.25Vanguard Wellington172 ()VWELX149 leads the0.30 way at just 0.25%25,000 for a analyst ratings methodology, which rates funds on a share class classic balanced fund run by a strong team at Wellington. It’s so Baird Core Intermedi- level and has resulted in some rating changes. In particular, the easy to own that I recommend it just about as much as any other Plus Bond ate Core- ratings adaptation has led to downgrades in low-return categories fund. And, no, it isn’t closed--you just have to invest directly with Inst BCOIX No Gold Plus Bond 19.25 196 162 0.30 25,000 such as short-term bond and munis, because our methodology is Vanguard to get in. particularly unforgiving of middling fees in low-return categories. Reprinted by permission of Morningstar, January 2020 Reprinted by permission of Morningstar, January 2019

Bench- Pro- The Thrilling 34 Morn- mark or spectus ingstar Morn- Mgr Cumula- Category Adj. Op. Only 34 funds passed all myClosed tests. to Analyst ingstar Tenure tive Tenure Avg Re- Expense Min. In- Name Ticker New Inv Rating Category (Longest) Return turn Ratio vestment Baird Mid- Mid-Cap Cap Inst BMDIX No Bronze Growth 19.00 350 298 0.81 25,000 12-30-2019 | by Russel Kinnel Baird Short- EveryTerm yearBond I write about the Thrilling 34--although the numberShort-Term However, because I already set the bar at cheapest quintile, it isn’t variesInst slightly eachBSBIX time. TheNo idea is to focusGold on the mostBond 15.33likely to knock53 many of this44 list’s candidates0.30 out of the25,000 box. importantDodge & factors and let them do the weeding for me. The goal is aCox short Global list of outstanding funds accessible to individualWorld investors. You may recall that I detailed past performance of prior lists earlier ThisBond isn’t a list DODLXfor huge pensionNo funds. Silver Bond 5.58in the year here.19 In all six lists8 over the years,0.45 at least two2,500 thirds or Dodge & more of the funds outperformed peers. And in five out of six lists, YouCox can Global be awfully picky when you have 8,000 funds to Worldchoose a majority outperformed their benchmarks. Of course, there are no from.Stock The criteriaDOD-WX have largelyNo been the same,Gold with someLarge minor Stock 11.58guarantees that96 this list will95 match the prior0.62 lists’ performance.2,500 tweaks over the years. Intermedi- Dodge & ate Core- In the case of funds where multiple share classes qualified, I HereCox Incomeare the testsDODIX I used thisNo time: Gold Plus Bond 30.92chose the one638 with the lowest500 minimum.0.42 For example,2,500 Vanguard’s Admiral shares and Investor shares qualified for the nine funds Dodge & 1. Expense ratio in the category’s cheapest quintile. that made the list, but because the investor share class also Cox Stock DODGX No Gold Large Value 27.92 1,972 1,262 0.52 2,500 2. Manager investment of more than $1 million in the fund. qualified, I used the investor share class. Fidelity3. Morningstar Risk rating below the High level. Diversified4. Morningstar Analyst Rating of Bronze or higher. Foreign I often get questions about this list that imply I should have Interna5. Parent- rating better than average/neutral. Large chosen fund B over fund A. To be clear, it’s a series of screens. I’m tional6. ReturnsFDIVX above the fund’sNo benchmarkBronze over the manager’sGrowth 18.67not picking the246 funds and there158 is no set0.81 number of funds.0 Over Fidelitytenure for a minimum of five years. In the case of allocation the years it has bounced from the 20s to the 40s. Low-Pricedfunds, I also used category averages because benchmarksMid-Cap Stock are oftenFLPSX pure equity Noor bond and thereforeSilver not aValue good test. 30.00My last note 4,189is that I included2,361 funds closed0.52 to new investors0 Fidelity7. Must Se- be a share class accessible to individual investors because their shareholders want to know if they still pass the test. lect Healthwith a minimum investment no greater than $50,000. Care8. No fundsFSPHX of funds. No Gold Health 11.17Here then are476 the Thrilling 33134 in reverse 0.71alpha order. 0 Fidelity Intermedi- The only real change to the above list is that I used prospectus Vanguard Total Bond ate Core- adjusted operating expense ratio. I didn’t make the switch just Vanguard got nine funds on the list, the most of any firm. As Fund FTBFX No Gold Plus Bond 15.00 99 93 0.45 0 because it’s a catchy name. It’s the measure we use for our Vanguardians like to say, it’s not active versus passive, it’s low cost analystHarbor ratings, too. It includes rolled up fund-of-funds fees but versus high cost. The list of nine features active funds with fees as doesCapital not Ap include- transactional costs such as leverage or shorting. low as 21 basis points. When a fund is that cheap, it’s a lot easier Thispreciation avoids an apples-to-oranges comparison. Large to deliver good performance and beat the benchmark. Instl HACAX No Silver Growth 29.58 2,589 1,731 0.66 50,000 ASeafarer more subtle change is that we have moved to the enhanced Vanguard Wellington ()VWELX leads the way at just 0.25% for a analystOverseas ratings methodology, which rates funds on a share class classic balanced fund run by a strong team at Wellington. It’s so levelGr and and has resulted in some rating changes. In particular,Diversified the easy to own that I recommend it just about as much as any other ratingsIncome adaptation has led to downgrades in low-return Emergingcategories fund. And, no, it isn’t closed--you just have to invest directly with suchInstl as short-termSIGIX bond andNo munis, becauseSilver our methodologyMkts is 7.83Vanguard to 59get in. 28 0.89 25,000 particularly unforgiving of middling fees in low-return categories. Reprinted by permission of Morningstar, January 2020 Reprinted by permission of Morningstar, January 2019

Bench- Pro- The Thrilling 34 Morn- mark or spectus ingstar Morn- Mgr Cumula- Category Adj. Op. Only 34 funds passed all myClosed tests. to Analyst ingstar Tenure tive Tenure Avg Re- Expense Min. In- Name Ticker New Inv Rating Category (Longest) Return turn Ratio vestment T. Rowe Price 12-30-2019 | by Russel Kinnel Mid-Cap Mid-Cap Growth RPMGX Yes Gold Growth 27.50 3,407 1,438 0.75 2,500 Every year I write about the Thrilling 34--although the number However, because I already set the bar at cheapest quintile, it isn’t variesT. Rowe slightly each time. The idea is to focus on the most likely to knock many of this list’s candidates out of the box. importantPrice Mid- factors and let them do the weeding for me. TheMid-Cap goal is aCap short Value list of outstandingTRMCX fundsYes accessibleGold to individualValue investors. 19.00You may recall513 that I detailed459 past performance0.78 of prior2,500 lists earlier ThisT. Rowe isn’t a list for huge pension funds. Pacific/Asia in the year here. In all six lists over the years, at least two thirds or Price New ex-Japan more of the funds outperformed peers. And in five out of six lists, YouAsia can be awfullyPRASX picky whenNo you have 8,000Bronze funds to Stkchoose 5.50a majority outperformed48 their38 benchmarks.0.93 Of course,2,500 there are no from.Vanguard The criteria have largely been the same, with some minor guarantees that this list will match the prior lists’ performance. tweaksDividend over the years. Large Growth Inv VDIGX No Gold Blend 13.83In the case of286 funds where238 multiple share0.22 classes qualified,3,000 I HereVanguard are the tests I used this time: Equity chose the one with the lowest minimum. For example, Vanguard’s Energy Inv VGENX No Silver Energy 7.58Admiral shares13 and Investor9 shares qualified0.37 for the nine3,000 funds 1. Expense ratio in the category’s cheapest quintile. that made the list, but because the investor share class also Vanguard 2. Manager investment of more than $1 million in the fund. qualified, I used the investor share class. Equity-In- 3. Morningstar Risk rating below the High level. come Inv VEIPX No Silver Large Value 16.00 310 251 0.27 3,000 4. Morningstar Analyst Rating of Bronze or higher. I often get questions about this list that imply I should have Vanguard5. Parent rating better than average/neutral. Small chosen fund B over fund A. To be clear, it’s a series of screens. I’m Explorer6. Returns Inv VEXPX above the fund’sNo benchmarkBronze over the manager’sGrowth 25.83not picking the1,076 funds and there576 is no set0.46 number of funds.3,000 Over Vanguardtenure for a minimum of five years. In the case ofIntermedi allocation- the years it has bounced from the 20s to the 40s. GNMAfunds, I also used category averages because benchmarksate Govern - Adm are oftenVFIJX pure equity Noor bond and thereforeSilver not ament good test. 9.50My last note 32is that I included28 funds closed0.11 to new investors50,000 Vanguard7. Must be a share class accessible to individual investors because their shareholders want to know if they still pass the test. PRIMECAPwith a minimum investment no greater than $50,000.Large Core8. InvNo fundsVPCCX of funds. Yes Gold Blend 15.00Here then are380 the Thrilling 29034 in reverse 0.46alpha order. 3,000 Vanguard ThePRIMECAP only real change to the above list is that I used prospectusLarge Vanguard adjustedInv operatingVPMCX expense Yesratio. I didn’t Goldmake the switchGrowth just 34.50Vanguard got9,130 nine funds on4,320 the list, the 0.38most of any firm.3,000 As because it’s a catchy name. It’s the measure we use for our Vanguardians like to say, it’s not active versus passive, it’s low cost analyst ratings, too. It includes rolled up fund-of-funds feesAlloca but- versus high cost. The list of nine features active funds with fees as doesVanguard not include transactional costs such as leverage ortion--30% shorting. low as 21 basis points. When a fund is that cheap, it’s a lot easier ThisWellesley avoids an apples-to-oranges comparison. to 50% to deliver good performance and beat the benchmark. Income Inv VWINX No Gold Equity 12.92 137 72 0.23 3,000 A more subtle change is that we have moved to the enhancedAlloca- Vanguard Wellington ()VWELX leads the way at just 0.25% for a analystVanguard ratings methodology, which rates funds on a sharetion--50% class classic balanced fund run by a strong team at Wellington. It’s so levelWellington and has resulted in some rating changes. In particular,to 70% the easy to own that I recommend it just about as much as any other ratingsInv adaptationVWELX has led toYes downgradesGold in low-return Equitycategories 17.00fund. And, no,335 it isn’t closed--you197 just have0.25 to invest directly3,000 with such as short-term bond and munis, because our methodology is Vanguard to get in. particularly unforgiving of middling fees in low-return categories. ReprintedReprintedReprinted by bypermission by permission permission of Morningstar,of of Morningstar, Morningstar, January January January 2019 2019 2020

Reprinted by permission of Morningstar, January 2019 GlossaryGlossary minimumminimum of of five five years years is isrequired; required; (7) (7) category category benchmarks benchmarks or or Glossary minimum of five years is required; (7) category benchmarks or averages used for allocation categories;averages (8)averages no institutional used shareused for for allocation allocation categories; categories; (8) (8) no no institutional institutional share share The ThrillingMorningstar Analyst RatingTM 34 for Funds classes; (9) no fund of funds. The testclasses; wasclasses; run using returns(9) (9) no no fund fund of of funds. funds. The The test test was was run run using using returns returns MorningstarMorningstar Analyst AnalystThe Morningstar RatingTM RatingTM Analyst Rating™ isfor not for aFunds credit Funds or risk through July 2018. Using these ten screens, the tool filtered 28 out TheThe Morningstar Morningstar rating.Analyst Analyst It is a subjective Rating™ Rating™ evaluation performedis isnot not by a credita credit or or riskof morerisk than 8,000 mutual funds. throughthrough July July 2018. 2018. Using Using these these ten ten screens, screens, the the tool tool filtered filtered 28 28out out Only 34 fundsMorningstar’s passed manager all research my group,tests. which consists of various Morningstar, Inc. subsidiaries (“Manager Morningstar Manager Return ofof more more than than 8,000 8,000 mutual mutual funds. funds. rating.rating. It Itis isa subjectivea subjectiveResearch Group”). evaluation evaluationIn the United States, performed thatperformed subsidiary by by A fund’s annualized return from the start date (the first day of the is Morningstar Research Services LLC, which is month shown) of the longest tenured manager. Morningstar’sMorningstar’s manager registeredmanager with research and research governed by thegroup, U.S.group, Securities which which and Exchange consists consists Commission. The Manager Research Group evaluates funds Morningstar Parent Rating MorningstarMorningstar Manager Manager Return Return ofof various various Morningstar, Morningstar,based on five Inc.key Inc.pillars, subsidiaries whichsubsidiaries are process, performance, (“Manager (“Manager people, An assessment of the parent organization. Key (operational) areas parent, and price. The Manager Research Group uses this five of evaluating a parent organization include:A Afund’s recruitmentfund’s annualized and annualized return return from from the the start start date date (the (the first first day day of ofthe the ResearchResearch12-30-2019 Group”). Group”). | bypillar RusselIn evaluation Inthe the toUnitedKinnel determine United how States, theyStates, believe that funds that are subsidiary likely subsidiary to retention of talent, organizational structure, capacity management, perform relative to a benchmark, or in the case of exchange-traded organizational and business strategy,month alignmentmonth of interestsshown) shown) with of of the the longest longest tenured tenured manager. manager. is isMorningstar Morningstar Research fundsResearch and index mutualServices Services funds, a relevant LLC, LLC, peer which group, which over is the is fund investors and regulatory compliance. long term on a risk-adjusted basis. They consider quantitative and registeredregisteredEvery year with withI write andqualitative and aboutgoverned governedfactors in the their research, byThrilling by the andthe theU.S. weightU.S.34--although Securities of Securitieseach pillar Morningstar andthe and numberExchange ExchangeRisk However, because I already set the bar at cheapest quintile, it isn’t may vary. The Analyst Rating scale is Gold, Silver, Bronze, Neutral, An assessment of the variations in a fund’sMorningstarMorningstar monthly returns, Parent Parent Rating Rating Commission.Commission.varies slightly The The eachand Manager Negative. Manager time. A Morningstar ResearchThe Research Analystidea Rating isGroup toofGroup Gold, focus Silver,evaluates evaluates or on thewith fundsanmost emphasisfunds on downward variation.likely It is calculated to asknock the many of this list’s candidates out of the box. Bronze reflects the Manager Research Group’s conviction in a difference between Morningstar ReturnAn An(adjusted assessment assessment for loads and of of the the parent parent organization. organization. Key Key (operational) (operational) areas areas basedbasedimportant on on five five factors key fund’skey pillars, andprospectspillars, let for outperformance.which themwhich aredo are Analyst theprocess, process, Ratings weeding ultimately performance, performance, forexcess me. over The the people,risk-free goalpeople, rate) isand Morningstar Risk-Adjusted reflect the Manager Research Group’s overall assessment, are Return (adjusted for loads, excess overof theof evaluating risk-free evaluating rate and a parenta parent organization organization include: include: recruitment recruitment and and parent,parent,a short and listand price. of price. outstandingoverseen The The by Manager an AnalystManager Ratingfunds Committee,Research Researchaccessible and are Groupcontinuously Group to individual uses usesrisk). this Morningstar this fiveinvestors. five Risk is similar to (and correlatedYou may with) standard recall that I detailed past performance of prior lists earlier monitored and reevaluated at least every 14 months. 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Of course, there are no sole basis in evaluating a fund, (ii) involves unknown risks and 22.5% are scored 4, or “Above Average”; the next 35% are scored longlongfrom. term term The on oncriteria a risk-adjusteda uncertaintiesrisk-adjusted have which largely may basis. causebasis. been Analyst They They expectationsthe consider same,consider not to with quantitative quantitative3, or some “Average”; minorthe nextand and 22.5% are scoredguarantees 2, or “Below Average”; that this list will match the prior lists’ performance. occur or to differ significantly from what they expected, and the bottom 10% are scored 1, or “Low.”MorningstarMorningstar Risk Risk qualitativequalitativetweaks over factors factors the(iii) inshouldyears. intheir nottheir be consideredresearch, research, an offer and or and solicitation the the weight to weightbuy or of of each each pillar pillar maymay vary. vary. The The Analyst Analystsell the fund. Rating Rating scale scale is isGold, Gold, Silver, Silver, Bronze, Bronze, Neutral, Neutral, AnAnIn assessment theassessment case of of funds of the the variations where variations multiple in ina fund’sa sharefund’s monthly classes monthly returns,qualified, returns, I Morningstar FundInvestor withwith an an emphasis emphasis on on downward downward variation. variation. It Itis iscalculated calculated as as the the andandHere Negative. Negative. are the Atests AInMorningstar this Morningstar analysis, I used Morningstar this Analyst evaluatestime:Analyst funds Rating basedRating on a ofset of Gold, Gold, Silver, Silver, or or chose the one with the lowest minimum. For example, Vanguard’s of screens established by Russel Kinnel, Director of Manager differencedifference between between MorningstarMorningstar Return Return (adjusted (adjusted for for loads loads and and BronzeBronze reflects reflects theResearch the ManagerandManager editor. As listed Research onResearch p. 1 of the article, Group’s Group’sthe screens conviction conviction in ina a Admiral shares and Investor shares qualified for the nine funds applied are as follows: (1) Expenses must be in the cheapest Reprinted by permission of Morningstar, excessInc. excess©2019 Morningstar, over over Inc.the the risk-free risk-free rate) rate) and and Morningstar Morningstar Risk-Adjusted Risk-Adjusted fund’sfund’s1. prospects prospectsExpense quintilefor ratio for outperformance.of theoutperformance. in category; the (2) category’s manager investment Analyst Analyst cheapest in the fund Ratings must Ratings quintile.All Rights ultimately ultimately Reserved. The information containedthat herein: (1)made is proprietary the list, but because the investor share class also to Morningstar and/or its content providers; (2) may not be copied be more than $1,000,000; (3) the Morningstar Risk rating must be reflectreflect the the ManagerManager Research Research Group’s Group’s overall overall assessment, assessment,or distributed; (3) doesare arenot constitute investmentReturnReturn advice offered(adjusted (adjusted by for for loads, loads, excess excess over over the the risk-free risk-free rate rate and and 2. Managerbelow investment the High level; (4) the of fund more must be a than“medalist”– $1 i.e., millionit Morningstar; in the and (4) fund. is not warranted to be accurate,qualified, complete or I used the investor share class. overseenoverseen by by an an Analystmust Analyst be rated RatingBronze, Rating Silver Committee,or Gold; Committee, (5) Parent Rating and must and be are are continuouslytimely. continuously Neither Morningstar nor its contentrisk). providersrisk). Morningstar are Morningstarresponsible Risk Risk is issimilar similar to to (and (and correlated correlated with) with) standard standard 3. Morningstarpositive; (6) Risk the fund rating must have outperformedbelow itsthe prospectus High level.for any damages or losses arising from any use of this information. Past monitoredmonitored4. Morningstar and and reevaluated benchmarkreevaluated Analyst over the tenure at at Ratingleastof theleast longest every of everytenured Bronze 14 manager. 14 months. months.Aor higher.performance For For more is nomore guarantee of future results.deviation;deviation;I often get the the questions key key difference difference about isthis isthat thatlist standard thatstandard imply deviation deviationI should gives havegives the the detaileddetailed5. informationParent information rating about betterabout Morningstar’s Morningstar’sthan average/neutral. Analyst Analyst Rating, Rating, samesamechosen weight weight fund to Bto upside over upside fund and and A.downside downsideTo be clear, variation. variation. it’s a seriesMorningstar Morningstar of screens. Risk Risk I’m includingincluding6. 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Risk.Risk.My The last The top note top 10% 10%is that are are givenI includedgiven a riska risk funds score score closed of of 5, 5,or to or “High”; new “High”; investors the the next next solesole 7.basis basisMust in in evaluating be evaluating a share aclass fund,a fund, accessible (ii) (ii) involves involves to individual unknown unknown investors risks risks and and 22.5%22.5%because are are scored their scored shareholders 4, 4,or or “Above “Above want Average”; Average”; to know the the ifnext theynext 35% still35% arepass are scored scoredthe test. uncertaintiesuncertaintieswith awhich minimumwhich may may investment cause cause Analyst Analyst no greater expectations expectations than $50,000. not not to to 3, 3,or or “Average”; “Average”; the the next next 22.5% 22.5% are are scored scored 2, 2,or or “Below “Below Average”; Average”; occuroccur8. or or Noto to differfunds differ ofsignificantly funds.significantly from from what what they they expected, expected, and and thetheHere bottom bottom then 10% are 10% arethe are scoredThrilling scored 1, 34 1,or or in“Low.” “Low.”reverse alpha order. (iii)(iii) should should not not be be considered considered an an offer offer or orsolicitation solicitation to tobuy buy or or sellsellThe the theonly fund. fund. real change to the above list is that I used prospectus Vanguard adjusted operating expense ratio. I didn’t make the switch just Vanguard got nine funds on the list, the most of any firm. As MorningstarMorningstarbecause it’s FundInvestor a FundInvestor catchy name. It’s the measure we use for our Vanguardians like to say, it’s not active versus passive, it’s low cost In Inanalystthis this analysis, analysis, ratings, Morningstar Morningstartoo. It includes evaluates evaluates rolled fundsup funds fund-of-funds based based on on a setafees set but versus high cost. The list of nine features active funds with fees as ofof doesscreens screens not establishedinclude established transactional by by Russel Russel Kinnel,costs Kinnel, such Director Director as leverage of of Manager Manager or shorting. low as 21 basis points. When a fund is that cheap, it’s a lot easier ResearchResearchThis avoids and and aneditor. editor. apples-to-oranges As As listed listed on on p. p.comparison.1 of1 of the the article, article, the the screens screens to deliver good performance and beat the benchmark. appliedapplied are are as as follows: follows: (1) (1) Expenses Expenses must must be be in inthe the cheapest cheapest ReprintedReprinted by by permission permission of ofMorningstar, Morningstar, Inc. Inc. ©2019 ©2019 Morningstar, Morningstar, Inc. Inc. quintilequintile of of the the category; category; (2) (2) manager manager investment investment in inthe the fund fund must must AllAll Rights Rights Reserved. Reserved. The The information information contained contained herein: herein: (1) (1) is isproprietary proprietary A more subtle change is that we have moved to the enhanced to toVanguardMorningstar Morningstar Wellington and/or and/or its its content ()VWELX content providers; providers;leads the (2) (2) waymay may notat not just be be copied 0.25% copied for a bebe more more than than $1,000,000; $1,000,000; (3) (3) the the Morningstar Morningstar Risk Risk rating rating must must be be analyst ratings methodology, which rates funds on a share class or orclassicdistributed; distributed; balanced (3) (3) does does fund not not constituterun constitute by a strong investment investment team advice at advice Wellington. offered offered by It’s by so belowbelowlevel the and the High has High level;resulted level; (4) (4) inthe thesome fund fund rating must must bechanges. be a “medalist”–a “medalist”– In particular, i.e., i.e., it the it Morningstar;Morningstar;easy to own and and that (4) (4) isI recommendisnot not warranted warranted it to just tobe be aboutaccurate, accurate, as completemuch complete as orany or other mustmustratings be be rated adaptation rated Bronze, Bronze, has Silver Silver led orto or Gold;downgrades Gold; (5) (5) Parent Parent in low-returnRating Rating must must categories be be timely.timely.fund. Neither And,Neither no,Morningstar Morningstar it isn’t closed--you nor nor its its content content just providers have providers to areinvest are responsible responsible directly with positive;positive;such as (6) short-term(6) the the fund fund mustbond must haveand have munis, outperformed outperformed because its ourits prospectus prospectusmethodology is forforVanguard any any damages damages to getor orlosses in. losses arising arising from from any any use use of ofthis this information. information. Past Past benchmarkbenchmarkparticularly over overunforgiving the the tenure tenure of of middling of the the longest longest fees tenured in tenured low-return manager. manager. categories. A A performanceperformance is isno no guarantee guarantee of offuture future results. results. Reprinted by permission of Morningstar, January 2020

Figures shown are past results for Class A shares and are not predictive of results in future periods. Current and future results Themay be Thrilling lower or higher than 34 those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Fund results are for Class A shares and refl ect deduction of the 5.75% maximum sales charge. OnlyFor current34 funds information passed all and my month-endtests. results, visit capitalgroup.com.

Results as of December 31, 2019 12-30-2019 | by Russel Kinnel Average annual total returns (%) Inception Expense Fund name date One year Five years 10 years Lifetime ratio (%) Every year I write about the Thrilling 34--although the number However, because I already set the bar at cheapest quintile, it isn’t AMCAP Fund® (AMCPX) 05/01/67 19.07 9.39 12.27 11.44 0.66 varies slightly each time. The idea is to focus on the most likely to knock many of this list’s candidates out of the box. importantAmerican factors Balanced and Fund®let them (ABALX) do the weeding for me. The goal is 07/26/75 12.34 6.88 9.49 10.47 0.57 aCapital short list Income of outstanding Builder®(CAIBX) funds accessible to individual investors.07/30/87 You may recall10.62 that I detailed4.05 past performance6.44 8.83 of prior lists0.61 earlier This isn’t a list for huge pension funds. in the year here. In all six lists over the years, at least two thirds or Capital World Growth and Income Fund® (CWGIX) 03/26/93more of the18.11 funds outperformed6.61 peers.7.81 And in10.21 five out of six0.76 lists, YouAmerican can be Fundsawfully Global picky when Balanced you have Fund 8,000SM (GBLAX) funds to choose 02/01/11a majority 10.53outperformed3.97 their benchmarks.— Of course,5.65 there0.84 are no from. The criteria have largely been the same, with some minor guarantees that this list will match the prior lists’ performance. The Growth Fund of America® (AGTHX) 12/01/73 20.75 11.07 12.27 13.44 0.65 tweaks over the years. The Income Fund of America® (AMECX) 12/01/73In the case12.08 of funds where5.61 multiple8.34 share classes10.72 qualified,0.58 I HereNew are Perspective the tests I Fund®used this (ANWPX) time: 03/13/73chose the 22.60one with the 9.81lowest minimum.10.15 For 12.12example, Vanguard’s0.76 Admiral shares and Investor shares qualified for the nine funds 1. Expense ratio in the category’s cheapest quintile. that made the list, but because the investor share class also 2. Manager investment of more than $1 million in the fund. qualified, I used the investor share class. 3. Morningstar Risk rating below the High level. 4. Morningstar Analyst Rating of Bronze or higher. I often get questions about this list that imply I should have 5. Parent rating better than average/neutral. chosen fund B over fund A. To be clear, it’s a series of screens. I’m 6. Returns above the fund’s benchmark over the manager’s not picking the funds and there is no set number of funds. Over Investmentstenure arefor anot minimum FDIC-insured, of five noryears. are In they the depositscase of allocation of or guaranteed the years by ita bankhas bounced or any other from theentity, 20s soto theythe 40s. may lose value. Investmentfunds, results I also assume used all distributions category averages are reinvested because and refl benchmarks ect applicable fees and expenses. Returns greater than one year were annualized. Expense ratios are as of eachare fund's often prospectus pure equity available or atbond the time and of therefore publication. not When a good applicable, test. investmentMy last results note refl is ectthat fee I waiversincluded and/or funds expense closed reimbursements, to new investors without which results7. wouldMust have be beena share lower. class Please accessible see capitalgroup.com to individual for more investors information. because their shareholders want to know if they still pass the test. with a minimum investment no greater than $50,000. Investing outside the United States involves risks such as currency fl uctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may8. be heightenedNo funds in of connection funds. with investments in developing countries. The return ofHere principal then for are bond the funds Thrilling and for 34funds in withreverse signifi alpha cant underlying order. bond holdings is not guaranteed. Fund shares are subject to the same interest rate, infl ation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greaterThe only fl uctuations real change in value to and the risk above of loss listof income is that and I usedprincipal prospectus than higher rated bonds.Vanguard adjusted operating expense ratio. I didn’t make the switch just Vanguard got nine funds on the list, the most of any firm. As If used after March 31, 2020, this article must be accompanied by a current American Funds quarterly statistical update. because it’s a catchy name. It’s the measure we use for our Vanguardians like to say, it’s not active versus passive, it’s low cost Investorsanalyst ratings, should too. carefully It includes consider rolled investment up fund-of-funds objectives, fees but risks, chargesversus and high expenses. cost. The This list ofand nine other features important active information funds with fees is as containeddoes not include in the transactionalfund prospectuses costs such and summaryas leverage prospectuses, or shorting. whichlow canas 21 be basis obtained points. from When a fi nanciala fund is professional that cheap, it’sand a should lot easier be readThis avoidscarefully an beforeapples-to-oranges investing. comparison. to deliver good performance and beat the benchmark. This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investmentA more subtle or fi duciary change advice. is that we have moved to the enhanced Vanguard Wellington ()VWELX leads the way at just 0.25% for a analyst ratings methodology, which rates funds on a share class classic balanced fund run by a strong team at Wellington. It’s so All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affi liated company or fund. All other company and product names mentioned arelevel the and property has ofresulted their respective in some companies. rating changes. In particular, the easy to own that I recommend it just about as much as any other ratings adaptation has led to downgrades in low-return categories fund. And, no, it isn’t closed--you just have to invest directly with Americansuch as Fundsshort-term Distributors, bond Inc., and member munis, FINRA. because our methodology is Vanguard to get in. particularly unforgiving of middling fees in low-return categories. Lit. No. MFGEMR-027-0220P Litho in USA CGD/N/10227-S76005 © 2020 Capital Group. All rights reserved. Printed on recycled paper