We look at three recent Morningstar Analyst Rating upgrades and three downgrades.
We've had a chance to revisit many of the Morningstar Analyst Ratings we've issued for mutual funds since rolling them out more than a year ago. Most of the ratings have stayed stable, but we've had to reassess some because of fundamental changes, new information, or new insights. Here are three recent upgrades and three downgrades.
T. Rowe Price Growth Stock PRGFX manager Rob Bartolo has gotten off to a great start since taking over in 2007. That was as true a year ago as it is today. Still, we initially rated this fund Neutral in 2011 because this was Bartolo's first solo gig. He had comanaged sector fund T. Rowe Price Media & Telecommunications PRMTX for two years, but it wasn't clear how he would handle leading a more diversified fund with a much larger asset base. A year on, he's continued to deliver competitive results while demonstrating an ability to mix his own insights with those of T. Rowe's analysts, so we gave the fund a Bronze rating.
Vanguard Small Cap Value Index VSIAX got a Bronze rating initially because it seemed to struggle to keep up with the small-value category, which raised questions about its ability to track that universe as well as advertised. Since then, however, Vanguard has decided to switch this fund's benchmark from the MSCI US Small Cap Value Index to the CRSP US Small Cap Value Index, which--because of lower licensing fees and different index construction methodologies--could lower the expenses, turnover, and overall holding costs of this fund. It now gets a Silver rating.
BlackRock Small Cap Growth Equity PSGIX still has a lot to prove. Its record has been volatile and disappointing since Andrew Thut took over from Neil Wagner in 2008. That's why it got a Negative rating at first. Thut and current comanager Andrew Leger, however, had worked together along with Wagner on this fund since 2002, so they claim some responsibility for the fund's stronger long-term record. The process that produced those results remains consistent and the fund's fees are reasonable. Despite weak short-term returns, there are no fatal flaws, so we upped the rating to Neutral.
Franklin Federal Tax-Free Income FKTIX still has strong advantages, such as reasonable fees, experienced management, and alacrity with credit research. Our fixed-income fund analysts, however, fear the firm's risk controls and portfolio management tools may be a little behind the curve relative to rivals like Fidelity, Vanguard, and T. Rowe Price, which have invested heavily in municipal-bond portfolio analytics in recent years. The fund's duration-agnostic approach also has caused above-average volatility. For those reasons its rating dropped to Silver from Gold.
Buffalo Mid Cap BUFMX is another decent, affordable fund with a consistent strategy and seasoned management, but its Silver rating looked a little out of whack in relation to its peers. Buffalo Small Cap BUFSX has the same management team, approach, and relative fee rankings, but it has a Bronze rating. Since Mid Cap's long-term results relative to its category aren't quite as strong as those of its sibling, we adjusted its rating down to Bronze.
PIMCO Global Multi-Asset PGMDX has formidable managers and some promising funds at its disposal. But this fund of funds is still young. Its efforts to hedge against rare, potentially catastrophic events aren't fully battle-tested. The fund has included relatively new PIMCO equity funds in the portfolio, and comanager Saumil Parikh only recently joined the fund. Those components caused us to lower the fund's overall rating to Bronze from Silver.
This article originally ran in a recent issue of Morningstar FundInvestor.