We lowered the ratings for three foreign funds.
We continue to add funds to our Morningstar Analyst Ratings list and to revisit existing ratings on funds. Below, I look at a couple of re-ratings and some ratings issued for the first time.
New Rating: Silver
We are initiating a Silver rating of this fund. Although Bob Rodriguez has dialed back his contributions, the fund still has good managers and a sound strategy. Dennis Bryan and Rikard Ekstrand run a focused portfolio with a big slug of cash just like Rodriguez did. They remain risk-averse investors willing to pass on opportunities that don't meet their rigorous criteria. They look for cheap companies with healthy balance sheets and of late have been big fans of energy. That energy stake makes the fund relatively sensitive to oil prices, but it still has a lot going for it.
The new managers are not new to FPA. Bryan has been with the firm for nearly 20 years and Ekstrand since 1999. This is why we still have confidence in the fund even with Rodriguez in a more limited role. The fund comes with a front load.
New Rating: Silver
We have lowered our rating to Silver because of concerns about succession. James Moffett is a brilliant manager who has produced excellent results here since 1993. However, he is now near 70, and we have to be prepared for the possibility that he could retire in the next few years. While he had two comanagers added in 2011 and 2012, there isn't anyone with the experience or track record to give us sufficient confidence to keep the fund rated Gold. If you are buying it today for the next decade, you are betting on Moffett's successors as much as on him, and that takes you into some big unknowns. The fund is no-load.
We have lowered these two funds to Bronze from Silver. The funds are enduring their fourth-straight year of poor performance as managers Rudolph-Riad Younes and Richard Pell's macro forecasts are still misfiring. The four poor years follow quickly on the heels of seven straight brilliant years ended in 2007. While their country-selection skills worked well prior to the financial crisis, they have struggled
as central bankers and debt crises made for a very different world.
It's not just performance that worries us, though. Artio is cutting jobs in response to a long wave of redemptions. These, too, are negatives weighing on the firm. Clearly, the recently spun-off Artio is feeling profit pressure, and it even liquidated its U.S. equity funds in an effort to save some money. The funds are no-load.
We are starting these funds with a Silver rating. Scott Mather has proved adept at moving among countries and between corporate and government debt since taking the helm in February 2008. He's managed to limit the damage caused by Europe's problems, and in the unhedged version he's shown skill with currency management. As a result, the funds have been steady performers. What you choose really depends on your needs. Hedged is less volatile, but you lose out on currency diversification. If you feel you already have enough foreign-currency exposure through your foreign equity funds or elsewhere, then Hedged may be the way to go. The funds are available in Institutional shares, D shares (no-load but with a 12b-1 fee), and A shares. If you have a choice among them, see if paying a fee for the Institutional shares will actually save you money on expenses when compared with the D or A shares.