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Fund Spy: Morningstar Medalist Edition

When the Facts Change, So Can Morningstar Analyst Ratings

Here are some examples of Analyst Ratings we've changed due to altered circumstances.

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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
 Vanguard International Explorer (VINEX) is an example of subtraction by addition. It has many of the tools needed for success: low fees, experienced management, an approach focused on higher-quality foreign small-growth stocks, and a competitive long-term record. Morningstar Analyst Karin Anderson and the international ratings committee recently took the rating down a notch from Silver to Bronze, though. The manager who's responsible for much of the fund's since-inception results--Schroder Asset Management's Matthew Dobbs--is no longer solely responsible for its future. Vanguard added Wellington Management's Simon Thomas as a second subadvisor to the fund in 2010. Thomas started out with a small slice of International Explorer but will manage more as new money comes into the fund. He and his team also have a shorter and mixed track record at Hartford International Small Company (HNSAX). The Vanguard fund still earns a recommendation, but with less conviction due to the uncertainty of how this subadvisory arrangement will work out.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.