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Fund Spy: Morningstar Medalist Edition

New Coverage Dominates October Ratings Activity

Forty ratings debuted in October.

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New Coverage Dominates October Ratings Activity
In October, Morningstar manager research analysts downgraded the Morningstar Analyst Ratings of two funds and assigned new ratings to 40 funds. Below are some of October’s highlights, followed by the full list of ratings activity.

 Invesco Equity and Income
(ACEIX) and  Invesco Growth and Income (ACGIX) were both downgraded to Neutral ratings from Bronze because management changes increased uncertainty. The longest-tenured team member on both funds, comanager Mary Jayne Maly, retired in March 2016. While the funds prepared in advance for Maly’s retirement by offloading her coverage to other team members, her departure still leaves a hole. Additionally, both funds have posted mixed results since Tom Bastian took over as lead manager in early 2009.

New Ratings:
 Eaton Vance High Income Opportunities
(EVHIX) starts off with a Silver rating because of its experienced team, sensible process, and competitive returns. Lead manager Mike Weilheimer has been at Eaton Vance for more than 25 years and is supported by experienced comanagers and analysts. The group employs a bottom-up fundamental approach--with a macro overlay--focused on assessing each issuer’s market advantage, growth prospects, competitive threats, cyclicality, and financial strength. This approach has produced excellent long-term results. The fund consistently ranks in the top third of its high-yield bond Morningstar Category and has mostly been insulated from severe bouts of volatility post-2008. Low fees add to its appeal.

Fidelity Advisor Limited Term Bond (EFIPX) was assigned a Silver rating in October thanks to its risk-conscious approach and sound team of managers and supporting analysts. This fund offers a specific proposition within the short-term bond category. While the fund’s credit focus and longer duration may cause more volatility compared with peers, these traits provide flexibility to capture higher returns. Comanagers Rob Galusza and David Prothro bring complementary management backgrounds to this fund; together they draw on research from Fidelity’s deep bench of analysts. Since Galusza came on this fund in July 2009, through September 2016, the fund’s annualized gain of 4.5% beats the Barclays Government/Credit 1-5 Year Index benchmark and its typical short-term bond peer by roughly two percentage points.

 Royce Total Return’s (RYTRX) solid managers, distinct approach, and predictable risk/reward profile contribute to this fund’s Bronze rating. Lead manager Chuck Royce has been at the helm since the fund’s December 1993 inception. He is supported by a long-tenured team, including comanager Jay Kaplan and assistant portfolio managers George Necakov and Chris Flynn. The managers look for micro- and small-cap dividend-paying stocks to hold for three to five years, emphasizing firms with solid balance sheets and high profitability ratios trading at reasonable valuations. The fund has been a top performer over the long term thanks to its keen eye on risk control: It will provide solid downside protection but tends to lag--although still participate--during market rallies. While the fund has trailed the Russell 2000 Index benchmark during the trailing five years ended September 2016, results still beat the benchmark on a risk-adjusted basis.

 MFS Global Total Return (MFWTX) was assigned a Bronze rating in October and may be appealing to investors looking for a straightforward global balanced fund. The fund brings together 10 managers--five focused on equities and five on fixed income--and most have impressive records running stand-alone MFS funds. Strong managers on the equity side include Steven Gorham and Nevin Chitkara, who run Silver-rated  MFS Value (MEIAX), and Benjamin Stone and Pablo de la Mata, who run Silver-rated  MFS International Value (MINIX). Both replicate their strategies for those funds here. The fixed-income sleeve taps Richard Hawkins and Robert Persons; they comanage Bronze-rated  MFS Corporate Bond (MFBFX). The fund sticks to a fairly standard 60/40 stock/bond mix, but it has an appetite for foreign holdings, particularly within fixed-income.


Andrew Daniels has a position in the following securities mentioned above: MEIAX. Find out about Morningstar’s editorial policies.