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Fund Spy: Morningstar Medalist Edition

A Burst of Ratings Activity for November

A bevy of newly rated funds and a handful of rating changes.

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In November, Morningstar manager research analysts upgraded the Morningstar Analyst Rating on one fund, downgraded three funds, affirmed ratings on 79 funds, and assigned new ratings to 89 mutual funds and 105 exchange-traded funds. Below are some of November’s highlights, followed by the full list of ratings activity.

Upgrades
 T. Rowe Price International Growth & Income’s (TRIGX) portfolio manager Jonathan Matthews has been at the helm of this fund for more than six years and encountered a mix of market conditions during that span. Over the course of his tenure, performance has outpaced the typical offering in the  foreign large-value Morningstar Category, and the MSCI EAFE Value Index on an absolute and risk-adjusted basis. Matthews continues to have exceptional personnel resources at his disposal, including the firm’s vast team of more than 130 equity analysts and a dozen international-stock portfolio managers, six of whom run funds that receive Positive People Pillar ratings. Strong leadership and resources, as well as a reasonable price tag, merit the fund’s rating upgrade to Bronze from Neutral.

Downgrades
 Vanguard Developed Markets Index Fund (VTMGX) is a one-stop shop for broad exposure to large-, mid-, and small-cap stocks listed in 24 foreign developed markets, excluding the United States. Its diversified, market-cap-weighted portfolio promotes low turnover, effectively diversifies company-specific risk, and accurately represents its target market. For these reasons, Morningstar maintains high conviction in the fund but recognizes the risk of significant single-country concentrations inherent in broad foreign market-cap-weighted indexes. For example, the 22% allocation to Japanese stocks and 16% U.K. exposure are well above the foreign large-blend category norm, and structural geographic biases, such as this, justify the fund’s rating adjustment to Silver from Gold.

MainStay MAP's (MUBFX) loss of its two longest-tenured managers, combined with lackluster performance and high fees, merits the fund's downgrade to Neutral from Bronze. This large-blend fund splits assets evenly between two subadvised sleeves, both of which hunt for stocks with company-specific catalysts for improvement. One subadvisor, International Capital, builds a fairly concentrated portfolio of about 50 stocks and uses a 12- to 18-month time horizon. The other subadvisor, Markston, spreads its assets across more than 100 stocks and takes a three- to five-year view. The process is straightforward, but changes in leadership at both subadvisors introduce uncertainty. Jerry Senser retired from his role as portfolio manager on the ICAP sleeve this past September, followed by Roger Lob, who retired from his role as portfolio manager on the Markston International sleeve in October.

New Ratings
 Templeton International Bond (FIBZX) is on the bolder end of the world-bond category spectrum. The fund has almost no exposure to the debt of the U.S., eurozone, and Japan, which dominate most peer funds’ portfolios. Shrewd emerging-markets investment themes and currency selection often differentiate the fund from peers, particularly since portfolio manager Michael Hasenstab and his team aren’t afraid of employing a contrarian approach. In the depths of the 2011 eurozone crisis, the fund bought beaten-down Irish and Hungarian bonds, and when Mexican and Brazilian bond sold off at the end of 2015, the fund bought in. Moves like these have led to sharp, short-term bouts of underperformance, but over time, long-term-focused investors have been rewarded. Strong leadership, a skilled analyst bench, and the fund’s consistent approach earn the fund a Bronze rating.

 Lazard Global Listed Infrastructure’s (GLIFX) investment strategy is centered on preferred infrastructure stocks, which are companies the team defines as having monopoly-like characteristics, high revenue certainty, strong profitability, and long-lived assets. The team conducts fundamental research designed to identify undervalued preferred infrastructure companies that must operate in developed economies, and then ranks each stock on the basis of expected return. This vetting guides portfolio construction, and targets the Consumer Price Index plus 5% in the long run.  While the investment process is one of its major strengths, the resulting portfolio may be concentrated depending on the opportunity set, which raises the fund’s risk profile. The strategy’s long-term performance, though, remains commendable relative to peers, and when combined with its well-defined value-focused process and experienced team, receives a Bronze rating.


The complete listing of ratings changes can be found here.

Emory Zink does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.