LiveWorld Transcripts

Wingspan Bank presents

Morningstar® senior analyst and columnist Scott Cooley
Mutual Funds

September 23, 1999

Morningstar® senior analyst and columnist Scott Cooley answers every imaginable question about mutual funds.

Page 1 of 8

Wingspan: WingspanBank.com is proud to introduce Morningstar® senior analyst and columnist Scott Cooley. Scott covers financial and domestic-equity funds for Morningstar, specializing in American Century, Fidelity, PBHG, Vanguard, and Oakmark fund families. He also writes a monthly column for Morningstar.net and frequently contributes book reviews and other analyses to the site. He has been quoted by many media outlets, including The Wall Street Journal, Money, Business Week, The New York Times, CNBC, CNN, and CNNfn. Scott frequently presents speeches about investing to groups of professional and individual investors. Today, Scott will answer your questions about mutual funds, paying particular attention to the differences between active and passive management in domestic-equity funds. For a schedule of upcoming chats on a range of topics, go to our site at www.wingspanbank.com and select the "Plan" tab.

Blueman: What are the differences between actively and passively managed funds?

Scott Cooley: A passively managed fund simply attempts to track the performance of an index, such as the S&P 500. An actively managed fund tries to beat a benchmark index.

Sfcarl: What are index funds?

Scott Cooley: An index fund is a passively managed fund. That is, it simply tracks the performance of an index very closely.

Kristi: Do you believe that in the long run an individual investor can outperform an index fund?

Scott Cooley: I think there are some very talented investors such as Warren Buffett and Bill Miller who can consistently beat an index. It's very difficult, though. And I think that most investors would be better off buying index funds.

Ddwoman: Can you comment on the reduction of funding of mutual funds this year compared to last year?

Scott Cooley: I think these kinds of numbers are very volatile. I wouldn't necessarily read that much into them. I think part of the reason inflows have fallen is that the performance of the stock market has been so strong that people feel that they can cut back a little bit on the amount of money they are investing. I don't necessarily see that as a horrible thing. People have recognized some huge gains in recent years. So it probably makes sense for some people to do that. Of course, most people weren't saving enough a few years ago and aren't saving enough now. But that's something, unfortunately, that doesn't seem to change over time.

Saver: Why are international funds becoming more popular lately?

Scott Cooley: Money tends to chase performance. A lot of foreign funds, especially those with big weightings in Japan and other Asian countries, have put up amazing returns this year. There are some that have even posted triple digit year-to-date returns. So, it is not surprising that investors are taking note of that and buying some of these funds.

Page 1 of 8