Christopher Franz is a manager research analyst for Morningstar.
T. Rowe Price Blue Chip Growth
was raised to Gold from Silver thanks to longtime manager Larry Puglia’s consistently executed approach. Puglia has led the fund since its 1993 inception and seeks companies with above-average durable growth prospects, strong free cash flow, and sensible management teams.
Puglia isn’t afraid to differ from the fund’s Russell 1000 Growth Index benchmark or large-growth peers, as the fund features large overweightings in consumer discretionary and technology stocks, as well as a handful of non-U.S. names, such as Tencent and Alibaba
. Puglia has relied on T. Rowe’s strong analyst bench during his 24-year tenure and is in his late 50s, but T. Rowe has a strong record of handling manager transitions, when the time comes for his retirement.
Fidelity Government Income
was dropped to Bronze from Gold owing to the departure of a longtime manager and decreased confidence in its ability to outperform peers. After a decade at the helm, Bill Irving stepped down from the fund on Dec. 1, 2017, to take a role in the firm’s asset-allocation group. Replacement Sean Corcoran is a 15-year Fidelity veteran who previously covered commercial mortgage-backed securities. Corcoran joins Franco Castagliuolo, who has been a fund comanager since late 2009, and longtime trader Steve Langan. The managers don’t plan to change the fund’s strategy, which avoids interest-rate bets and focuses on security selection and sector allocation within government bonds. This government-only portfolio has performed better than intermediate government peers during periods of credit stress but struggles against peers with mortgage and treasury exposure. The fund’s expense edge has eroded somewhat in recent years, further supporting the downgrade.
Third Avenue Real Estate Value
was lowered to Neutral from Silver because of an upcoming manager departure, analyst turnover, and parent-level concerns. Co-lead manager Michael Winer, who has been involved since the fund’s 1998 inception, is expected to retire in early 2018. Remaining managers Jason Wolf and Ryan Dobratz don’t plan to change the fund’s deep-value, benchmark-agnostic approach, which favors real estate operating companies over real estate investment trusts because of their ability to reinvest cash. The team added a supporting analyst in 2017 and plans to add another to address Winer’s departure. Wolf and Dobratz serve on the firm’s management committee, which was reshuffled following SEC scrutiny. On top of the management and analyst changes, the fund has high fees.
Boston Partners Global Equity
features a solid management team and appealing bottom-up investment process, which contribute to its inaugural Silver rating. Christopher Hart has led the fund since late 2011 and was joined by Joshua Jones in 2013. The duo used to work together in Boston, but Jones relocated to London in 2016. Supported by three dedicated global generalists, the group evaluates stocks based upon valuation, business fundamentals, and momentum, combining a quantitative screen with bottom-up research to build an expansive portfolio, which can range from 70 to 135 names. The go-anywhere portfolio keeps around half of its assets in U.S. companies and favors mid-caps, with an average market cap half that of its world large stock Morningstar Category peers. Since inception, the fund has beaten its MSCI World Index benchmark and landed in the category’s top quartile.
A relatively thin investment team, above-average fees, and parent-level and risk-management concerns warrant a Negative rating for Ivy Municipal High Income
. Michael Walls has run the fund since 2009 and is supported by four muni analysts and an additional portfolio manager. The team takes an aggressive approach to credit that ventures into nonrated debt, sometimes in concentrated positions. This presents risk, especially with such a small supporting team. Indeed, the fund experienced at least two nonpayment events in the past two years, weighing on its returns. While the fund has provided some downside protection when muni markets are stressed, its longer-term results lag most peers and it’s expensive.