Skip to Content
Fund Spy

1- and 2-Star Morningstar Medalists

Why you should stick with these funds.

Mentioned: , , , ,

A version of this article first appeared in the May 2019 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.

Most Morningstar Medalist funds in the Morningstar 500 have relatively strong track records, and while bouts of underperformance are inevitable, few of those that are actively managed have overall Morningstar Ratings of 2 stars or less. Below, we examine the prospects of underperforming medalist funds in the Morningstar 500.

 First Eagle Fund of America (FEFAX)
Morningstar Analyst Rating: Bronze
Morningstar Rating: 2 stars
First Eagle Fund of America plunged nearly 24% in 2018, landing in the bottom 1% of mid-blend Morningstar Category peers. Some tech picks such hurt. For example, former top-10 holding  Western Digital (WDC) fell more than 50%. A sizable overweight to materials didn't help, either, as the sector was among the Russell Midcap Index's worst performers. Further weighing on the fund's record is its 2016 result, where several healthcare picks tanked, most notably Valeant Pharmaceuticals, leading to another bottom-decile showing. Still, there's reason to believe in a rebound. The fund features veteran managers, some of whom have worked together since the 1980s, and they draw on an experienced analyst team. The group invests with a contrarian bent, seeking companies undergoing changes--typically new management or a restructuring. The managers have flexibility, too, investing across the market-cap spectrum and writing covered-call options to provide some downside protection. Recent mistakes notwithstanding, this fund has never been afraid to stand out from peers.  

 Causeway Global Value (CGVIX)
Morningstar Analyst Rating: Silver
Morningstar Rating: 2 stars
Causeway Global Value's embrace of firms facing operational distress has contributed to its long-term success but has made for an uneven ride. Lead managers Sarah Ketterer and Harry Hartford oversee an approach that combines qualitative and quantitative analysis that identifies cheap stocks across the world. Alongside six comanagers, they build a compact portfolio of around 50 stocks while tactically hedging currencies. The fund's managers have demonstrated an ability to endure short-term pain while their contrarian theses play out. For example, British American Tobacco (BATS), owned since 2012, was a key detractor in 2018 when the fund's 11.2% loss trailed the MSCI ACWI and world large-stock category peers. Still, the group's decision to add to the position in early 2019 proved prescient, as the stock performed well through mid-June. Over the long term, the team's stock picks have been effective, as the fund has beaten the MSCI ACWI and MSCI ACWI Value since its 2008 inception, despite headwinds from its value tilt and light stake in U.S. stocks.

 Matthews Asian Growth and Income (MICSX)
Morningstar Analyst Rating: Silver
Morningstar Rating: 2 stars
Matthews Asian Growth and Income's lack of emerging-Asia equity exposure has held it back in recent years, but it still remains appealing. Much of the fund's strength resides in its managers, who have extensive experience investing in Asian equities. Comanagers Robert Horrocks and Kenneth Lowe invest conservatively, focusing on dividend-paying common and preferred stocks, and convertible and other bonds, rather than faster-growing companies. They also tend to favor Asia's more developed markets such as Singapore and Hong Kong as opposed to China. While favoring less flashy fare held the strategy back in strong market such as 2017's rally, it held up better than the MSCI AC Asia ex Japan Index and Pacific/Asia ex-Japan stock category in 2018's sell-off. This type of resiliency in challenged markets has led to superior long-term risk-adjusted returns, making the fund suitable for those seeking a more cautious approach to Asian equity.

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