Billion-Dollar Funds With Negative Ratings
These funds' fundamental problems cloud their futures.
The lowest Morningstar Analyst Rating a fund can earn is Negative. (The others are Gold, Silver, Bronze, and Neutral.) Negative-rated funds are those that we believe are likely to underperform their peers and benchmark over a full market cycle because of fundamental flaws, which can include an inexperienced team, an unsound strategy, high fees, and issues at the parent company. Below, we highlight the largest funds that earn Negative Analyst Ratings (all have more than $1 billion in assets) and why we think their prospects are dim.
Ivy High Income (WRHIX) ($8.3 billion)
This fund has seen two successive lead managers depart in the past 15 months. In November 2013, Bryan Krug, who had steered the fund to excellent results since taking the helm in February 2006, departed to start a new team at Artisan. William Nelson (then the manager of sister fund Waddell & Reed High Income (UNHIX)) took over, but he was fired in July 2014 for reasons unrelated to portfolio management duties. The latest skipper is Chad Gunther, who had served as an assistant manager at this fund since 2008. He's backed by seven analysts, two of whom were just hired in 2014. (This compares unfavorably to many competitors.) In addition, the analysts are responsible for risk management, no small task given the fund's penchant for owning lower-rated bonds even within the high-yield universe. Because of the team's modest resources, spate of manager turnover, and the hefty risks it takes, the fund earns a Negative score for the People pillar.
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.