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Fund Spy: Morningstar Medalist Edition

August Ratings Heat Up

No summer holiday for new analyst ratings.

In August, Morningstar manager research analysts affirmed the Morningstar Analyst Ratings of 95 funds and two target-date series, upgraded the ratings of eight funds, downgraded the ratings of seven funds, and assigned new ratings to 48 funds. Below are some of August’s highlights, followed by the full list of ratings changes.

The rating for  PIMCO Mortgage Opportunities (PMZIX) was raised to Silver from Bronze because of continued improvements at the firm and the fund’s reasonable fee level. Dan Hyman, who co-heads PIMCO’s agency mortgage portfolio management team, has run the fund since its 2012 inception. Hyman and team rely on PIMCO’s deep economic outlook to craft a benchmark-agnostic portfolio, which has an absolute return, Libor-based return target.

Compared with peers in the nontraditional bond Morningstar Category, the fund sticks mainly to mortgage-related investments, which have boosted returns since its inception. This go-anywhere approach can introduce risk, as exhibited by the fund’s increasing mortgage derivative exposure, but due to strong bottom-up security selection and the firm’s deep analytical advantages, Hyman and his team have demonstrated an ability to manage risk prudently.

The rating for  T. Rowe Price International Stock (PRITX) was upgraded to Bronze from Neutral due to increased confidence in its manager. Richard Clattenburg joined the fund as an analyst in 2007, was promoted to associate manager in 2010, and became lead manager in 2015 when Bob Smith retired. He’s plying a similar approach as his predecessor, seeking international companies with strong balance sheets, healthy free cash flows, and good growth prospects. Thus far, Clattenburg’s strong stock picks in China and several European markets have given the fund a performance edge versus the MSCI ACWI ex USA Index and foreign large-growth peers from his 2015 start date through August 2017. He’s also supported by T. Rowe’s large equity analyst team, which has demonstrated success across various international equity funds.

Due to uncertainty over an upcoming manager change, the rating for  Fidelity Small Cap Stock (FSLCX) was cut to Neutral from Bronze. Lead manager Lionel Harris, who’s managed the fund since late 2011, is stepping down in June 2018 to focus on other Fidelity projects. Taking over is Kip Johann-Berkel, a Fidelity research analyst who joined the firm in 2009. Johann-Berkel has covered a wide range of sectors as a small-cap analyst, including industrials, consumers, and financials, and he’ll receive support from the firm’s deep small-cap team, but this fund represents his first management charge. He joined the fund as a comanager in July 2017 and plans to keep much of Harris’s process intact, though he may look for names lower in market cap. The two will work together to transition the fund, but it’s uncertain how the fund’s complexion will look in the future. 

New Ratings:
 JHancock Disciplined Value Mid Cap (JVMIX) received an inaugural Silver rating due to its seasoned management team and time-tested process. Lead manager Steve Pollack is co-CEO and CIO of subadvisor Boston Partners and is well resourced, supported by a comanager and 28 additional analysts. The team uses a quantitative screen to rank stocks on factors such as valuation and momentum, and following further fundamental analysis, Pollack adds compelling ideas to the roughly 130-stock fund. The fund’s record is strong: It outpaces its Russell Midcap Value Index and peers over Pollack’s tenure, but capacity is a concern. Assets have ballooned from under $1 billion in 2010 to over $14 billion as of July 2017. The fund closed to new investors in 2014, and there have not yet been noticeable effects, but its continued growth bears monitoring. 

 Voya Intermediate Bond (IIBAX) features a thorough process, attractive performance, and low fees, leading to a Silver rating. The fund was retooled following poor performance in 2008’s financial crisis, where it was drubbed by peers and the Bloomberg Barclays U.S. Aggregate Bond Index. Christine Hurtsellers took over at the start of 2009 and was joined by Matthew Toms in the second half of 2010. Together the two have implemented an in-depth process that has featured exposure to high-yield and emerging-markets debt. Hurtsellers stepped off the fund in April 2017 as she became CEO of Voya’s investment management division, but Toms, who serves as the firm’s fixed income CIO, remains well-resourced: two new comanagers—the group’s heads for securitized and credit research—were just added to the fund.

  source: Morningstar


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