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By Christine Benz | 10-08-2012 03:00 PM

What to Make of Analyst Ratings Changes

Morningstar fund experts discuss key catalysts for Analyst Ratings changes and what they mean for investors, plus detail some recent upgrades and downgrades.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

Morningstar's Fund Analyst Ratings aim to give investors a sense of whether a fund is worth owning or not.

Joining me to discuss some funds that have recently changed in the rating scale are Russ Kinnel--he's director of fund research for Morningstar--and Dan Culloton, associate director of fund analysis for Morningstar.

Russ and Dan, thank you for joining me.

Russel Kinnel: Good to be here.

Dan Culloton: Pleasure to be here.

Benz: So let's start by doing a little stage-setting and talk about the key catalysts for ratings changes. What would you be looking at if you were upgrading funds or deciding to downgrade them?

Kinnel: So really it's key changes in the fundamentals. Manager changes, expense ratio changes, strategy shifts, asset bloat--maybe a fund has shed assets and now is more attractive. So really kind of key fundamentals.

Benz: So performance alone wouldn't typically be a reason for an analyst to downgrade a fund?

Kinnel: Typically not, but there is information there. We pay a lot of attention to performance, because that is good information, but generally that's not the only reason.

Benz: You are looking for some fundamental problem.

So, say, I am looking at a rating of a fund that I own, and I see that it has recently gone down. Should that be an impetus for me to consider selling at that point? What should I make of these ratings changes?

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