Wednesday, September 20, 2006

TIP: never pay retail for Real Return Funds

With a free premium day pass from morningstar.com, I had chance to take a peek into Morningstar's mutual fund ratings. One fund that Morningstar brought to my attention was the Harbor Real Return Fund (HARRX). Harbor Fund farms out the management of its mutual funds to proven subadvisors while keeping costs down at the company and fund level.

This strategy really shows in Harbor Real Return Fund which is managed by PIMCO's John Brynjolfsson CFA, who also manages PIMCO Real Return (PRRDX). These have the same strategy of investing in Treasury Inflation Protected securities. Unlike a passive bond fund like (TIP), the manager has the flexibility to invest globally and hedge interest rate/duration exposure. The core difference between the funds being that PIMCO's fund charges 0.90% while Harbor's fund charges 0.57%. The Harbor Fund also has a smaller minimum investment ($1000 vs $5000), than PIMCO's fund.

Finding out about opportunities like this makes holding a monthly/yearly subscription to Morningstar a good value for anyone who is brave and smart enough to admit they need some help. I include myself in that category.

The Harbor Fund’s 0.57% expenses are not excessive when compared to the fully passive TIPS ETF (TIP) at %0.20. Because of dynamics of the TIPS market, active management can add value if you don’t over pay for it.