The muffled clatter of hands on computer keyboards is the loudest sound greeting Don Phillips as he enters his office on the fourth floor of the venerable Monadnock Building. The receptionist, himself busy at two side-by-side computers, offers Phillips a hushed hello, careful not to break the morning quiet. Phillips’s voice mail will do that. When he presses the phone button for his early messages, he opens his day to an international panic–the recorded voices of half a dozen frantic reporters pleading for a callback. It’s mid-September and the world’s currency markets have gone nuts. Responding to an aggressive hike in German interest rates, the central bank of Sweden has raised its rates to 300 percent, in effect closing down that country’s credit market. The British pound and French franc are in free-fall, and the value of everything Germans make or own is soaring. The once seemingly inevitable econom- ic unification of the Continent appears doomed. Financial reporters in the U.S. are having trouble understanding it all. Coverage from the first day of the crisis was a mess. A day later they fall back to the “what will it mean to the man on the street?” angle. One of the places Americans will feel the crisis is in their mutual funds. One out of four Americans owns shares in a fund, and whether they know it or not most of them probably have some money tied up in overseas investments. Many have a good portion of their assets in funds that invest only in Europe. Phillips, the publisher of Morningstar Mutual Funds, the nation’s premier data source on the fund industry, is the guy reporters call first.
Phillips’s ability to make the business of funds intelligible to a broad public has propelled Morningstar Mutual Funds on a quick climb to the top of financial publishing. Hired in the company’s infancy in 1985 by Morningstar founder Joe Mansueto, Phillips has nurtured the publication from an obscure newsletter into the top ranks of financial publishing. When he arrived, Morningstar published a semiannual survey of the fund industry. Today it offers 16 different publications, including its flagship Morningstar Mutual Funds (MMF), which appears twice monthly. Morningstar’s business has more than doubled each year since inception and this year sales will approach $11 million. Though that’s minuscule compared to media giants like Dow Jones and Reuters (annual sales $1.7 billion and $2.7 billion respectively), the company’s impact on the fund industry has been gargantuan.
Mansueto introduced his service through an ad in Barron’s, Dow-Jones’s financial weekly, for $130 a year. Six hundred people signed up for nearly $80,000 worth of subscriptions. He never looked back. Two years later, he sensed a demand for a more current and in-depth service. With $200,000 in cash, virtually everything Morningstar had earned to date, and another $200,000 borrowed from family, Mansueto launched Morningstar Mutual Funds. To staff the new venture, he ran the first of the employment ads that have become a regular feature in the local classifieds. Don Phillips answered the call. Shortly afterward he was running the publication, researching all the funds and writing a short, punchy summary of each. As the publication grew in scope and distribution, Phillips moved up to publisher, a role he now plays for several Morningstar publications. At last count, MMF employed 13 analysts, supported by a staff of nearly 100 data and copy editors, programmers, graphic artists, and marketers. Thirty thousand subscribers pay $395 per year for the biweekly.
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Phillips grew up in Texas. He majored in English and economics at the University of Texas and joined Morningstar after receiving a master’s degree in English from the University of Chicago. For his thesis he wrote on Robert Coover’s short story “Beginnings.” He has a taste for colorful prose, from 19th-century Gothic novels to the amphetamine-induced science fiction of Philip K. Dick, whose books he collects. An unlikely wide range of references springs up when he talks or writes about mutual funds, anything from Adam Smith to the Addams Family. Speaking with a reporter who called to share notes on financial writing, Phillips invoked a quote from the 17th-century mathematician and philosopher Blaise Pascal. Sorry this letter is so long, Phillips quoted, but I didn’t have time to write it short. On another occasion the topic of Phillips’s thesis came up. When he learned that the reporter he was talking to knew and liked Coover’s writing, Phillips’s face lit up. God, he said, it’s so nice to find someone who can talk about this stuff. But eventually the talk returned to mutual funds.
Like many successful entrepreneurs, Mansueto and Phillips had a good idea, great timing, and a little luck. In the mid-1980s America’s interest in mutual funds was taking off, creating in a short time perhaps the biggest shift of personal financial resources in American history.
Don Phillips offers still another reason for the popularity of mutual funds: consumerism. “The mutual fund industry takes saving, something our generation of Americans has been pretty bad at in recent years, and dresses it as the one thing we have a real genius for: spending,” says Phillips. “The one thing our generation needs to do more is save, and funds make it easy to do so. Unlike stocks, mutual funds are sold in flat dollar amounts. . . . Investors get statements each month which show their account balances, and they get brand names.” These days many funds are marketed in much the same way as resorts and cars are, with ads touting good “performance” and with slick brochures showing active, attractive young models enjoying the good life. The Fidelity group, parent of 156 funds, recently launched Worth, a handsome magazine that presents sophisticated financial advice in a layout and prose style resembling a popular life-style magazine. Ads for Italian clothes are sandwiched in between those for mutual fund families. The effect is something like a GQ for money. Selected Funds, a Chicago-based group of funds, runs ads in Gourmet and on WFMT, offering its services for people who’d rather invest money than time. It’s practically an invitation to buy on impulse.
There was information on funds available before Morningstar came along, but it was scattered and comparatively superficial. One can learn a great deal about funds from the periodic reports and prospectuses they are required to publish, but to get those publications one must request them individually or already own the funds. Consumer investment magazines like Money have long recommended and profiled funds, but only sketchily as part of periodic surveys of top performing funds. Probably the best one-stop source for information was the Guide to No-Load Mutual Funds, published by an investor-run organization, the American Association of Individual Investors (AAII), but it does not cover load funds, appears only annually, is less detailed and less comprehensive than Morningstar, and until recently did not have an independent data base against which to measure funds’ claims about their performance and risk levels. In October of 1991 Kiplinger’s Personal Finance magazine rated the AAII’s guide as the best low-cost guide for average investors, but in doing so it put MMF in a class by itself. AAII’s publications now reflect revisions inspired by Morningstar.
