Our Ratings Are Driven by Fundamentals

 Causeway International Value (CIVVX) doesn't own any emerging-market stocks. When emerging markets roar, the fund tends to lag its foreign large-value peers, nearly all of whom have at least a smattering of emerging-markets stocks. We rated it Gold for its seasoned management team and its disciplined value strategy. Our Gold rating doesn't mean we think developed markets will beat emerging markets.

Conversely,  Artisan International Small Cap (ARTJX) loves emerging markets. The fund has a fourth of its portfolio there. We rate it Gold for its proven manager who has the ability to find steadily growing small caps that will work over the long haul. Again, there's no macro forecast that's driving that rating.

In any single calendar year, emerging markets' performance will affect these funds' performance rankings in opposite directions. But that's not our focus. We are looking for funds with strong fundamentals that should work over the long haul on a risk-adjusted basis. We're not trying to make one-year market calls.

Barring extremes, those biases should wash out over the long haul as the fundamentals drive performance. In fact, both have outperformed their peers over the past 10 years. The Causeway fund took on less risk and delivered a 9.8% annualized return, while Artisan returned 15.6% annualized through May 15.

We try to help you by focusing on long-term competitive advantages such as management, fund company, expenses, strategy, and long-term performance.

If you want to tilt your portfolio to emerging markets or make a bet on inflation resurging, we can point you to good funds that can fill that role, but we won't tell you how to tilt your portfolio.

Japan bull Dennis Statman's  BlackRock Global Allocation (MDLOX) is rated Gold, but Japan skeptic  Longleaf Partners International (LLINX) rates a Bronze. At BlackRock, we like Statman's remarkable record of sidestepping danger in down markets while finding winners to fuel rallies. His 15-year return ranks in the top quintile of the category. Longleaf rates a Bronze for a strong shareholder orientation and seasoned management. However, it did lose an important manager when Andrew McDermott left in 2009, so it's not quite as appealing as Statman's fund.

 Vanguard Long-Term Treasury (VUSTX) rates a Silver because does an excellent job of delivering on its mission, but obviously it packs lots of interest-rate risk. On the other side is Chris Dialynas, who is shorting Treasuries to give  PIMCO Unconstrained Bond  a mere 1.4 year duration at the end of April. We rated it Bronze.

You can find similarly rated funds on either side of stock trades, too. Silver rated  T. Rowe Price Blue Chip Growth (TRBCX) was a big seller of  Apple (AAPL) shares in the first quarter, but Silver-rated  Mutual Global Discovery (MDISX) was on the other side of that trade in the first quarter as you can see from our Shareholders Buying table. When you buy an actively managed fund, you are backing a manager's stock-picking prowess over the long haul rather than picking stocks. If you really wanted to bet on Apple, you could buy the stock directly.

When  Permanent Portfolio (PRPFX) was flying high, we rated it Neutral because we were not impressed with the process and thought you could assemble a similar portfolio for less using exchange-traded funds. It was clear that a big driver was the price of gold, as not many allocation funds have such a big weighting. Yet investors may have confused that weighting with skill. Many that swarmed to the fund when gold was rising are now bailing out as gold has fallen.

If you want to go shopping by category, we have arranged our highest-rated funds by category group on this page. Just choose the one you want and position the portfolio as you see best.

For a list of the open-end funds we cover, click here.
For a list of the closed-end funds we cover, click here.
For a list of the exchange-traded funds we cover, click here.
For information on the Morningstar Analyst Ratings, click here.