Star Gazing: Rating Changes From November
Vanguard Windsor II, Fidelity Low-Priced Stock, and Janus Enterprise.
A few value funds with high concentrations of financial, utility, and energy stocks gained stars in Morningstar's rating system last month, while some aggressive growth-oriented funds with significant slugs of technology shares lost stars.
The star ratings are often touted and occasionally controversial, but they always get attention. In this, the first installment of a monthly feature on Morningstar.com, we provide lists of some of the biggest funds in terms of net assets that gained or lost stars last month.
Remember, though, the star rating, while far more objective than a critic's rating of a film or restaurant, has its limits. The rating, which grades funds based on their returns and risk levels, is more of a report card than a crystal ball. It's good at telling you what happened, but less reliable at predicting what's going to happen.
Before choosing a fund, it's crucial to consider what it owns, how it compares to its category peers, how long its manager has been on the job, what it costs and what strategies it employs. Now that you've been warned, here are the lists.
A surge in the fortunes of certain value stocks improved the risk scores, and in turn the star ratings, of some value funds, or those that focus on companies that look cheap when you compare their prices to their earnings, cash flow or other fundamentals.
|Ten Biggest Funds Gaining a Star in November|
|Star Rating |
|Net Assets |
( billions )
|Vanguard Windsor II (VWNFX)||3||4||22.74|
|Fidelity Asset Manager (FASMX)||3||4||13.00|
|Vanguard GNMA (VFIIX)||4||5||12.80|
|MSDW American Opportunities B (AMOBX)||4||5||10.44|
|American Opportunities B (AMOBX)||3||4||9.16|
|Vanguard STAR (VGSTX)||3||4||7.36|
|American Century Select Inv (TWCIX)||3||4||6.50|
|Franklin U.S. Government Secs A (FKUSX)||3||4||6.32|
|Fidelity Low-Priced Stock (FLPSX)||3||4||6.24|
|Fidelity Balanced (FBLAX)||3||4||5.80|
The biggest beneficiary in terms of net assets was Vanguard Windsor II (VWNFX). The nearly $23 billion fund moved from 3 to 4 stars. The fund has averaged nearly 3.75 stars over the last 15 years, but lost 5.8% and finished at the bottom of its peer group last year. Lead Manager Jim Barrow's reluctance to let go of cheap, dividend-paying stocks hurt the fund last year when growth stocks that don't pay dividends dominated. That same stubborn streak, however, has paid off this year. So far Windsor II's 12.8% return puts it in the top 13% of its category, thanks to long-standing bets on three of this year's top five best- performing stock sectors--financials, energy and utilities, which were up nearly 26%, 9% and 36%, respectively, through Monday. The reversal speaks well of Windsor II's discipline, said Morningstar.com analyst Bill Rocco. "The same stuff that hurt him last year is helping him this year," he said.
Windsor II's resurgence and the performance of mortgage loan fund Vanguard GNMA (VFIIX) also helped Vanguard STAR (VGSTX) improve its rating. That fund invests in nine other Vanguard funds, including Windsor II and GNMA. GNMA, whose long-term returns are in the top 10% of its category, moved from 4 stars to 5.
Another value hound, Fidelity Low-Priced Stock (FLPSX), managed by Joel Tillinghast, gained a star last month. The fund that has averaged more than 4 stars over the last eight years, saw its rating slip in recent years as investors chased large-cap names to the exclusion of nearly all else, and it posted relatively slim returns. A rally among small-cap stocks this year has helped the fund get closer to its average rating. So have Tillinghast's picks in the health-care sector, which has been one of the market's standouts in this overall lackluster year. Stocks like Quest Diagnostics (DGX) and RehabCare Group (RHB) each have returned more than 300% and helped boost Low-Priced Stock's rating from three to four stars.
A few growth funds that made big bets on technology gave up stars last month as the Nasdaq Composite index dove 22%.
|Ten Biggest Funds Losing a Star in November|
|Star Rating |
|Net Assets |
( billions )
|AIM Constellation A (CSTGX)||4||3||17.26|
|Fidelity OTC (FOCPX)||5||4||13.41|
|Franklin Small Cap Growth A (FRSGX)||4||3||12.00|
|Fidelity Retirement Growth (FDFFX)||5||4||8.55|
|AIM Weingarten A (WEINX)||3||2||8.27|
|Putnam Investors A (PINVX)||4||3||7.70|
|Janus Enterprise (JAENX)||5||4||7.54|
|Putnam Vista A (PVISXX)||5||4||6.54|
|T. Rowe Price New Horizons (PRNHX)||3||2||6.44|
|Putnam Global Growth (PEQUX)||5||4||5.40|
Janus Enterprise (JAENX), Fidelity OTC (FOCPX), Fidelity Retirement Growth (FDFFX), and Putnam Vista (PVISX) all lost their coveted status as 5-star funds. Putnam Vista and Fidelity Retirement Growth are both up for the year. However, all of these funds have lost money--in some cases significant money--over the last three months, particularly in November. Such dips can worsen funds' risk scores and impair their star ratings. Still these funds all have solid long-term records that place them in or near the top fourth of their respective categories.
For similar reasons PBHG Growth (PBHGX), dropped from 4-star to 2-star status last month. The aggressive, momentum-oriented fund managed by Gary Pilgrim has a great long-term record. Its 10-year average annual return is in the top 10% of its category (mid-cap growth). Yet this year has exposed PBHG Growth's considerable risks. With more than two thirds of its assets in technology, the fund lost 8.5% in the second quarter, when the tech tumble began, and has dropped nearly 21% over the last three months. That's one of the worst nosedives in its ultra-aggressive peer group.
Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.