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By Christine Benz and Russel Kinnel | 03-28-2013 10:00 AM

Fund Changes Bring New Analyst Ratings

Morningstar's Russ Kinnel examines recent fund Analyst Rating upgrades and downgrades and offers guidelines for investors who own these funds.

Christine Benz: Hi, I am Christine Benz for Roughly 1,100 mutual funds currently earn Morningstar Analyst ratings, and our analyst team is constantly reviewing their ratings on the various funds they cover. Joining me to discuss two recent upgrades and two recent downgrades is Russ Kinnel. He is director of fund research for Morningstar. Russ, thank you so much for being here.

Russ Kinnel: Good to be here.

Benz: Russ, let's take it from the top and start with the bad news. A couple of notable funds that we liked more in the past, we've recently downgraded. Let's start with Artio International. They've got two funds Artio International Equity, as well as International Equity II. We used to like them a lot. Now we've got them down to Neutral.

Kinnel: That's right. The issue there is that Aberdeen is buying Artio, and they said that managers are not going to stay with the funds, most likely after the deal goes through. So, definitely big changes are coming. We don't know exactly what's going on, but it's enough to take us to Neutral because you now say the managers are probably leaving and we don't know who is replacing them.

Benz: So the managers are going to leave as part of the deals?

Kinnel: That's what they said is that they expect they will leave. They didn’t say definitively, but it's enough for us to take them to Neutral.

Benz: Typically when you see a manager change is that necessarily cause for a downgrade or is it kind of a case-by-case [judgment]?

Kinnel: It's cause for review, but it's definitely case-by-case. You really want to understand who is left? How central are they to the process? So you really want to look at it on a case-by-case basis, but you really want to take a close look whenever that's happening.

Benz: So, if I'm an owner of this find, is this a cause to consider selling? How should I review this downgrade or see it in the context of what portfolio maneuvers I should make?

Kinnel: I think you might want to consider selling. You could hold and see who comes on. Or if you know there's another good fund out there, you might want to just switch because at a minimum it seems this fund is likely to get new managers and probably a new strategy. Now, it's possible they'll be decent. So, if you want to be patient you can or you can simply say, "Let's look for a new replacement and get one of the best funds out there."

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