These funds have black marks for stewardship.
Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.
This article originally appeared in Morningstar FundInvestor, an award-winning newsletter that presents investment strategies and tracks 500 funds.
A fund's prospects can be affected by more than a recent, fund-specific change of some kind. Sometimes broader issues at the fund's advisor that speak to the job it does as a steward of investors' capital can diminish a fund's attractiveness as a long-term investment. Below are several funds that are experiencing such issues, along with our take on them.
American Century Ultra
This large-growth fund has seen more than its share of manager changes lately. In 2007 alone, three experienced skippers--Bruce Wimberly, Jerry Sullivan, and Wade Slome--have left its management team (2005 and 2006 each saw a manager departure as well). As a result, only two managers remain: Tom Telford, who came on board just 18 months ago, and Steve Lurito, a new chief investment officer at American Century who is serving as an interim comanager. This personnel turnover is part of a larger trend at the firm that began about two years ago. One of the fund's managers who departed the firm, James Stowers III, was also its longtime chairman (and son of its founder). American Century has also seen a new chief executive officer join, as well as two other new CIOs besides Lurito.
This turmoil doesn't inspire much confidence--it also prompted us to drop the firm's corporate culture grade (the biggest portion of the Morningstar Stewardship Grade) to a C. Add in an expense ratio that's just average for no-load large-cap funds (despite a sizable $10 billion asset base) and we don't see much reason to own this fund.
Janus Growth & Income
Janus, a firm that was on the rebound after its poor performance in the 2000-02 bear market and involvement in the market-timing scandal, has suffered major talent losses in recent months. Two of its most experienced managers, David Corkins and Scott Schoelzel, have left the company, and they were soon followed out the door by rising star Minyoung Sohn. Because of the latter two departures, the above two funds have seen significant turmoil. Corkins had changed funds twice in recent years to help fill the void left from previous personnel losses-from longtime charge Growth & Income to Janus Mercury (now an analyst-run fund called Janus Research
As a result of these changes, Janus' corporate culture score has sunk to a D. We think Janus Fund's new skippers, particularly Jonathan Coleman (who turned around Janus Enterprise
Wells Fargo Advantage Opportunity
Wells Fargo Advantage Common Stock
These two mid-blend funds are run by a veteran manager, Dick Weiss. However, their 10-year records are just middling, weighed down in part by well-above-average expense ratios. What's more, Wells Fargo's manager compensation plan is heavily skewed toward short-term performance (one year), which gives managers little incentive to maintain a patient investing approach, and bonuses are based in part on funds' asset growth. All told, each fund earns a Stewardship Grade of D. We think investors would be wise to look elsewhere.
Greg Carlson is an analyst with Morningstar.