9 Fund Upgrades, 10 Downgrades in March
Overall, we published 205 ratings, giving inaugural grades to 14 strategies.
Morningstar Manager Research analysts published ratings for 205 mutual funds, exchange-traded funds, separate-account strategies, and collective investment trusts during March. That tally included nine upgrades, 10 downgrades, and 168 reaffirmed ratings. Another 13 received inaugural ratings and five went under review. Among the new ratings are SMA composites of target-risk series that are similar to model portfolios. The SMAs reflect investment performance of the model portfolios as they were implemented by the asset manager. Advisors can customize model portfolios in client accounts, and the models’ performance may vary significantly from the composites. Below are some highlights from the March ratings activity, along with tables of changes for the month.
Lead manager Ed Bousa's steady execution at subadvisor Wellington Management earned Hartford Dividend and Growth (HDGYX) an upgrade to Silver from Bronze. The fund's portfolio consists mostly of large-cap dividend payers that Bousa tries to pick up when they are out of favor. He adds companies with above-average growth prospects into the mix, striking a rough balance between the two. It's a rewarding combination with muted risk. The fund topped its large-value Morningstar Category average and its S&P 500 benchmark over Bousa's nearly 18-year tenure. The reliable fund has never had a bottom-quartile category finish in a calendar year under Bousa.
Two key changes made iShares Broad USD Investment Grade Corporate Bond ETF (USIG) a better option in its space, pushing its rating up to Silver from Bronze. A June 2018 fee cut made it one of the cheapest ways to access its market niche. In addition, an August 2018 switch to an index that excludes supranational debt turned the fund into a purer play on the investment-grade credit market. The new index helps the fund save on costs by favoring large issues that are easy to obtain and cheap to trade. True to its moniker, the fund's 4,000 holdings offer broad exposure and help diversify away issuer risks.
Both Artisan Global Value (ARTGX) and Artisan International Value (ARTKX) dropped to Silver from Gold in the wake of a management split. Managers Daniel O'Keefe and David Samra had run these funds together since 1997, but on Oct. 1, 2018, Artisan put Global Value under O'Keefe and International Value under Samra. The move gives Chicago-based O'Keefe and San Francisco-based Samra more autonomy and allows them to cultivate supporting teams, but a key question remains: Can they be as effective alone as they were together? There's reason to think they might--hence, the Silver ratings--but nonetheless, there's a new order at these two funds.
Loomis Sayles Bond (LSBDX) still has many of its great features intact: a deep and veteran team, a contrarian go-anywhere strategy, and a strong track record. Following founder Dan Fuss' approach to investing, the fund will take risks, delving into corporate credits, non-U.S.-dollar-denominated bonds, and junk debt. But risks around its equity stakes are a little too much, warranting a downgrade to Silver from Gold. Although equities typically make up only a mid-single-digit portion of the portfolio, concentration in just a few stocks is a hazard. More than 40% of its equity assets were in AT&T (T) as of February 2019.
Principal Blue Chip (PBCKX) earned an inaugural Silver rating on the strength of its team and proven process. Lead manager Bill Nolin has run Silver-rated Principal MidCap (PEMGX) for nearly two decades. He favors owner-operator businesses, and the growth of many holdings into large, established firms gave him the opportunity to ply his trade farther up the market-cap spectrum. Principal Blue Chip, which launched in 2012, is off to a respectable start. It started to distinguish itself by holding up a bit better in 2018's fourth-quarter sell-off, and a year-end fee cut made its pricing more attractive.
Ratings for SMA composites of target-risk series debuted, with BlackRock's target-risk series securing a Silver rating. This series allows financial advisors to allocate assets and select underlying funds based on clients' risk sensitivities. A dedicated team oversees the suite, constructing each portfolio's asset-class weightings independently of the others. The team keeps costs down by investing in highly liquid ETFs in BlackRock's diverse, well-regarded iShares lineup. It taps BlackRock's deep resources in other ways, relying on the firm's risk and investment strategy groups for stress testing and market research, respectively. That allows the team to focus on portfolio construction as its core responsibility.
Tony Thomas does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.