8 Recent Changes in Analyst Ratings
A host of factors drove these upgrades and downgrades.
A manager departure or addition can often lead to a change in a fund's Morningstar Analyst Rating. But there are plenty of other reasons why a rating can move up or down, as the list below of recent ratings adjustments at prominent funds indicates.
Davis NY Venture (NYVTX), Selected American Shares (SLADX), Clipper (CFIMX): All downgraded to Bronze
The surprising departure of Ken Feinberg at the end of 2013 prompted a re-evaluation. Feinberg comanaged the first two funds with Chris Davis for more than 15 years, and Clipper for eight years. The funds struggled mightily in 2008's sharp downturn as financials--the firm's specialty--were hammered, and they have since posted spotty relative performance. However, each fund had earned an Analyst Rating of Gold based on our thesis that Davis and Feinberg--two seasoned, bottom-up, long-term-oriented investors--could again generate strong returns. Davis remains on board along with a number of veteran analysts (and new comanager Danton Goei), so the fund's prospects are still solid. But our confidence level has taken a hit.
Fidelity Balanced (FBALX): Upgraded to Bronze
This fund's Analyst Rating rose in December from Neutral because of increased confidence in the management team. Fidelity's fixed-income crew has done a solid job for years and takes a team approach, so the bond portfolio here wasn't previously of concern, even though comanager Pramod Atluri has only overseen it for two years. (He and Bob Stansky, head of the equity portfolio, set the fund's asset mix.) The biggest driver of the upgrade: consistent stock selection by the equity team. The team had been on board since late 2008, but tight constraints meant that it had to deliver solid picks across the board to add significant value. It has done so in nine of the 10 major GICS sectors. The fund's relatively low 0.57% expense ratio also gives it a long-term edge over its no-load moderate-allocation peers.
Scout International (UMBWX): Downgraded to Bronze
This foreign large-growth fund has long been a pillar of stability: Lead skipper Jim Moffett has been at the helm since its 1993 inception, plying the same long-term moderate-growth approach and amassing a fine record with relatively limited volatility. However, a few small flaws recently caused us to lower the fund's Analyst Rating to Bronze from Silver. The fund has grown substantially and now invests almost exclusively in large-cap stocks; a significant slug of mid-cap stocks had helped the fund stand out in the past. Also, the fund's expense ratio has crept up even as its asset base has expanded in recent years. Finally, Moffett is past conventional retirement age, and although he says he has no plans to retire soon, he has appointed comanagers and gotten the rest of the team more involved in decision-making, which suggests the early stages of a transition. This is still a worthy holding, however.
William Blair International Growth (WBIGX): Downgraded to Neutral
The retirement of longtime skipper George Greig at the end of 2013 prompted a ratings change here. Greig managed the fund solo for virtually all of his nearly 17-year tenure, delivering top-flight returns over the long haul. Jeff Urbina and Simon Fennell, added as comanagers in May 2013, now run the fund on their own. Urbina has managed William Blair International Small Cap Growth (WISIX) and comanaged William Blair Emerging Markets Small Cap Growth (BESIX) since 2005, generating solid records at both. But that success may not translate to this fund, which tends to hold significant stakes in large- and mid-cap stocks, and this is Fennell's first portfolio manager assignment. Thus, the fund's prospects are less certain without Greig.
Akre Focus (AKREX): Upgraded to Silver
Chuck Akre has managed his eponymous fund since its August 2009 inception and, after taking time to deploy the fund's cash stake (which led to sluggish results early on), dramatically outpaced his typical mid-growth peer both in rocky 2011 and the rally of 2012-13. Combine that record with Akre's successful 12.5-year tenure at Hennessy Focus (HFCSX) and he boasts a very impressive resume, all while applying the same concentrated all-cap growth strategy. Furthermore, Akre's former analysts at Hennessy have continued to use the same approach at that fund with strong results, demonstrating that it is a repeatable strategy. And while Akre's focused tack has led to outsized bets on stocks and sectors, he has limited volatility through deft stock selection. So although the fund is still a bit pricey, an upgrade from Bronze was warranted.
JPMorgan Government Bond (HLGAX): Upgraded to Silver
It's far from flashy, but this fund's veteran lead skipper Michael Sais (a manager here since 1995) has led it to standout results. He's done so by keeping things simple--the portfolio is heavily focused on AAA rated debt, and duration is maintained at 5 to 5.5 years--and making savvy choices, particularly within mortgage-backed debt. As a result of its duration policy, the fund does currently carry more interest-rate risk than its typical peer (a big reason why the fund lagged in 2013); many government-bond funds have shortened their duration as rates are still at well below their historical averages. But a skilled, experienced lead skipper, consistent approach, and low fees lend the fund substantial appeal..
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Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.