We've Downgraded These Funds' Price Ratings
These four funds have failed to keep up with dropping fees.
This article was originally published in the August 2018 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.
Mutual fund fees have increasingly come under the microscope as cheap passive vehicles have proliferated and investors have flocked to them. This trend, combined with a nine-year bull market that has caused fund assets under management to grow (despite many active funds seeing outflows), has driven fees downward. As a result, active funds that haven't lowered their fees have become less competitive on price, and their Price Pillar ratings, a component of the Morningstar Analyst Rating, have gotten worse. Let's take a closer look at four funds whose Price ratings dropped to Negative from Positive during the past five years.
AllianzGI NFJ International Value (ANJIX)
This fund has stumbled badly, leading investors to pull $2.5 billion from its coffers over the past five years through July 2018. (It now has less than $300 million in assets.) As a result, the expense ratio for the fund's institutional shares rose to 0.95% from 0.87% during that period. At the same time, the median expense ratio for similarly distributed funds in the foreign large-value Morningstar Category dropped to 0.87% from 0.97%. Its declining Price rating, combined with reduced confidence in the fund's investment process, led its Analyst Rating to drop to Neutral from Silver over the past five years.
BlackRock Latin America (MDLTX)
Performance hasn't been bad at this regionally focused fund, just mediocre in recent years. But investors headed for the exits, redeeming $231 million over the past five years as the asset base shrank to $155 million. The expense ratio for the fund's A shares, meanwhile, ticked up to a recent 1.62% from 1.53% in 2013, while the front-load median fee for emerging-markets stock funds dropped to 1.55% from 1.75% during that span. The fund's Negative Price rating contributes to its overall Neutral rating--it was rated Bronze in 2013, when fees were below average.
Fidelity Advisor High Income Advantage (FAHCX)
This is the only fund in the group that retained its Morningstar Medalist status despite a falling Price rating. Fee spreads are relatively tight in the high-yield bond category. The fund's 0.77% expense ratio for its institutional shares matches its fee in 2013 (despite $500 million in outflows since then, the fund still has $1.8 billion in assets), but the category median for institutional peers dropped just enough during the period to push its fees into above-average territory. Meanwhile, Morningstar's conviction in manager Harley Lank and his aggressive strategy has grown, so the fund's Analyst Rating actually rose to Silver from Bronze.
Royce Total Return (RYTRX)
A sprawling portfolio, partly owing to a large asset base for a small-cap fund, has been one cause for this fund's slide into mediocrity. Investors pulled $4.3 billion from the fund during the past five years, and the expense ratio for its Investment share class thus climbed to 1.21% from 1.10%. (The fund still has $2.2 billion in assets.) The median price tag for no-load small-cap funds has dropped 6 basis points to 1.16% since 2013, so this share class' fee level is (barely) in Average range--it used to fall solidly in Below Average territory. Most of the fund's other share classes charge significantly more than average, though, so the fund now earns a Negative for Price. And its Analyst Rating declined from Bronze in 2013 to a current Neutral.
Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.