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Fund Spy: Morningstar Medalist Edition

Downgrades for Fidelity and American Funds Among Others

Here's a roundup of some key fund Analyst Rating changes for January.

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Morningstar analysts assigned Analyst Ratings to 1,346 fund share classes, exchange-traded funds, and separately managed accounts/collective investment trusts in January 2021. Of these, 1,024 maintained their previous rating, 32 were upgraded, 219 were downgraded, 49 were new to coverage, and 22 were placed under review owing to material changes such as manager departures.

Filtering share classes and vehicles to isolate unique strategies, Morningstar issued 272 Analyst Ratings during January. Of these, three were new to coverage, and the remainder had at least one investment vehicle that had been previously covered by a Morningstar analyst. 

Here are some highlights of the upgrades, downgrades, and new coverage for the period. (Morningstar Direct and Office clients have access to weekly fund rating summary reports here.)

Upgrades
Sprott Asset Management acquired Tocqueville Gold in January 2020, bolstering Sprott Gold Equity’s (SGDLX) team and earning the strategy’s People Pillar rating an upgrade to Above Average from Average. This upgrade drove a bump in its two share classes’ Analyst Rating to Bronze from Neutral. The combined specialized squad boasts significant experience in its precious-metals niche. Seasoned comanagers John Hathaway and Doug Groh hold five decades and three decades of gold-mining experience, respectively, while Hathaway has steered this strategy since its June 1998 inception at its predecessor firm. Groh and Hathaway welcomed Sprott veterans Maria Mirnova and Shree Kargutkar as comanagers in December 2020. This group’s strong team should give it an edge canvassing the compact gold-mining investment universe.

BlackRock LifePath Dynamic target-date series’ standout management roster includes a veteran tactical allocation manager and forward-thinking asset-allocation team, which prompted an upgrade to its People Pillar rating to High from Above Average. This change underpins an Analyst Rating shift to Silver from Bronze for its cheapest share class and to Bronze from Neutral for its second-cheapest share class. Its more expensive share classes retain their Neutral ratings. The strategy combines the skills of BlackRock’s global tactical allocation team, which handles manager selection and tactical tilts, with its LifePath group managing strategic asset allocation and the glide path. The two squads leverage their respective experience and deep resources, and they’ve made proactive improvements to tap into the full suite of active and passive strategies BlackRock offers. This gives them one of the most expansive tool kits of any proprietary target-date fund series, a clear positive for its long-term prospects.  

Downgrades
Considerable lineup changes drove downgrades of American Funds Fundamental Investors’ (ANCFX) cheapest share classes to Silver from Gold and its pricier share classes to Bronze from Silver. While the strategy’s sizable seven-member management team balances long-tenured veterans and relative newcomers, the group has changed up its ranks meaningfully in recent years, earning its People Pillar a downshift to Above Average from High. Since 2018, the strategy has lost three managers, two of which retired, and added four back. The remaining team’s skill in plying its flexible approach that often maintains an aggressive tilt should benefit investors over the long haul.

Fidelity Growth & Income (FGRIX) boasts an experienced leadership team and deep analytical resources. However, cracks in its risk management approach earned the strategy a downgrade to Bronze from Silver. Manager Matt Fruhan employs a bottom-up process that seeks to identify market mispricing of companies’ earning power. The approach incorporates scenario analysis to determine a range of a stock’s potential outcomes, which has often come up short in gauging an investment’s prospective downside, while Fruhan has shown reticence in cutting his losses. Despite these risk management shortcomings, Fruhan’s deep industry knowledge and Fidelity’s robust equity analyst squad should provide the strategy an edge compared with rivals over longer stretches.

New to Coverage
A low price tag coupled with a deep team earn TIAA-CREF Social Choice International Equity (TSONX) a Bronze rating. This strategy takes a socially responsible tack when engaging the non-U.S. developed stock market through its quasi-index lens, using optimization models designed to replicate the risk characteristics of the MSCI EAFE Index to build a portfolio of 400-500 stocks. Jim Campagna and Lei Liao of Nuveen’s index group have executed on this framework since the strategy’s 2015 inception. The duo leans on a sizable group of two associate portfolio managers and a team led by Amy O’Brien, Nuveen’s director of responsible investing, who oversees the social screening aspect of the approach. One of the largest of its kind since the legacy TIAA and Nuveen teams merged in 2017, this group makes this strategy a solid choice for investors seeking a socially conscious core international-stock fund.

Recent process shifts aim to position VanEck Global Hard Assets’ (GHAAX) as a next-generation natural-resources strategy, though it is unclear whether these adjustments will lead to a competitive edge over rivals. The fund earns a Neutral rating. Lead manager Shawn Reynolds and the firm’s quantitative team re-examined the strategy’s risk profile in 2018 and 2019. They determined that its large energy weighting resulted in excess volatility, leading Reynolds to cut the fund’s energy stake to 15.8% in November 2020 from 46.6% in April 2019. He also re-evaluated what the strategy’s energy composition would look like going forward. The makeup of its energy exposure now includes what Reynolds considers next-generation natural-resource constituents, such as solar companies, rather than sticking solely to conventional natural-resource investments, like oil and gas companies. It remains to be seen how fruitful these changes will be.

R.J. D'Ancona does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.