In December, Morningstar manager research analysts upgraded the Morningstar Analyst Ratings of five funds, downgraded the ratings of seven funds, affirmed ratings on 55 funds and two target-date series, and assigned new ratings to five mutual funds and nine exchange-traded funds. Below are some of December’s highlights, followed by the full list of ratings changes.
Christopher Franz is an analyst on Morningstar’s manager research team. He covers equity strategies.
The rating for AQR Style Premia Alternative
was upgraded to Silver from Bronze due to solid performance and increased confidence in the strategy. The fund takes a systematic approach to multiasset investing and is backed by strong academic research. Lead manager Ronen Israel targets four investment factors (value, momentum, carry, and defensive) and invests long and short across stocks, bonds, currencies, and commodities. The fund is off to a good start since its September 2014 inception, returning 3.4% through November 2016, solidly beating the average multialternative fund’s return of 1%. The fund also has a clear fee advantage, with all three share classes featuring a Low Morningstar Fee Level.
PIMCO Global Bond (USD-Hedged)
was upgraded to Silver from Bronze due to its underlying strength and consistency following a management change. Andrew Balls took over the fund in September 2014 from Scott Mather, adding two comanagers from PIMCO’s global fixed-income team. The group embraces PIMCO’s top-down economic views in constructing the portfolio to determine sector, country, and yield-curve positioning. Most of the fund is invested in government debt from the United States, eurozone, and Japan, but it can also own high-yield corporate and emerging-markets bonds. This flexibility and strong research culture at PIMCO help the fund, which also boasts low fees.
was downgraded to Bronze from Silver due to a higher expense ratio and limited fund resources. Chartwell Investment Partners bought the fund’s advisor, The Killen Group, in April 2016, providing an exit strategy for founder Bob Killen and locking comanager Lee Grout into a three-year employment contract. The acquisition should help to stabilize the fund, which has seen massive outflows in recent years, with net assets dropping to just $120 million from a peak of $518 million in December 2013. Grout is listed as comanager with Bob Killen, but essentially runs this fund himself as Killen focuses on sibling Berwyn Cornerstone
. Grout is experienced and has been on the fund for 14 years, but he’s somewhat resource-constrained given that other team members focus on larger sibling Berwyn Income.
features a decent long-term track record, long-tenured lead manager, and large supporting analyst team, but was assigned a Neutral rating in December due to key-man risk and the lack of a stated succession plan. Lead manager Mario Gabelli has delivered peer-beating results with below-average volatility since the fund’s May 1993 inception. Gabelli relies largely on his market intuition, derived from a nearly four-decade investment career, to identify small- and mid-cap companies that are undergoing acquisitions or other event-driven situations. Gabelli is assisted by two dedicated merger-arbitrage analysts on the strategy, but they are given limited latitude in decision-making.
Invesco Global Core Equity
is nearly three years removed from a portfolio manager change, which led to significant changes for the fund. Erik Esselink took over as lead manager in April 2014. In addition to relocating his team from Atlanta to San Francisco, he’s reduced the number of portfolio holdings to 80 from 120, to emphasize research and stock selection and has focused on cyclical, defensive, and financials picks. The fund is off to a slow start since the management change, and Esselink’s strategy is unproven, warranting a Neutral rating for the fund.