Here are some examples of Analyst Ratings we've changed due to altered circumstances.
Morningstar fund analysts try to keep an open mind when reviewing the Analyst Ratings they've assigned so far. Less than a year old, the Analyst Rating is our forwarded-looking, qualitative, bottom-up assessment of a mutual fund's prospects. So far, we've researched the personnel, investment processes, parent companies, price, and performance of nearly 900 funds and awarded them ratings of Gold, Silver, Bronze, Neutral, or Negative. We plan to rate a total of 1,500 funds, but as my colleague Russel Kinnel noted earlier this week, the ratings are not necessarily permanent. Fund managements, strategies, fees, and risk/reward profiles change, and we'd be fools not to reconsider our recommendations upon learning significant new information. Indeed, there already have been a few upgrades and downgrades as the analysts continue to monitor the funds they've rated since last fall and update them because of both obvious and subtle alterations. Here's a sampling of them.
Upon Further Review
Dan Rice is known for looking at energy companies like an operator. It gave him an edge in the equity-energy category and helped him earn a strong long-term record and a Bronze rating for
This past week, Rice resigned as manager of the fund he'd managed for State
Street and then BlackRock for more than two decades after The Wall Street
Journal columnist Jason Zweig called attention to potential conflicts of
interest between a drilling firm Rice founded in 2005--Rice Energy--and one of
the fund's holdings. Rice Energy, which has been run in recent years by Rice's
sons, has had a joint venture with one of Energy & Resources' top-five
"One bad move can turn your whole world upside down/It's such a shame 'cause you've been so good up to now." Singer-songwriter Lyle Lovett's hook came to mind when considering
I'll Take the Upgrade, Please
Vanguard's LifeStrategy series of funds were always good one-stop options for investors who didn't want to bother with building and rebalancing their own fund portfolios. A change in 2011's fourth quarter improved them by cutting a subpar active fund from its holdings and helped boost their ratings to Gold from Silver.
In late September 2011, Vanguard decided to make the four LifeStrategy funds of funds all-index. The four static asset-allocation funds that had used a mix of passive and active strategies have eliminated their active funds--Vanguard Short-Term Investment Grade VFSTX and Vanguard Asset Allocation--and now rely on the index-based and Gold-rated Vanguard Total Stock Market Index VTSMX, Vanguard Total Bond Market II Index VTBIX, and Vanguard Total International Stock VGTSX funds.
The change simplifies the LifeStrategy funds, lowers their costs, and increases their transparency. It also attunes the funds, which were launched in 1994, with Vanguard's current asset-allocation research and approach, including its all-passive, Gold-rated Target Retirement series. The move, however, also forced the fund family to look hard at Vanguard Asset Allocation, and it didn't like what it saw. Losing the LifeStrategy funds stripped Vanguard Asset Allocation of nearly two thirds of its assets. That fund, which tried to shift opportunistically among stocks, bonds, and cash, also had a poor record. Vanguard merged it earlier this year with Vanguard Balanced Index VBIAX.