3 New Medalists Lead Our Ratings Changes in July

We kept busy in July with quite a few ratings changes. Our Morningstar Analyst Ratings are long-term forward-looking ratings focused on the prospects of a fund's risk-adjusted returns. To see a complete list of Morningstar Medalists, follow this link.

We initiated coverage of three funds at Medalist levels in July.

 Vanguard Large Cap Index (VLCAX) starts out with a Gold rating. The fund tracks the CRSP Large Cap Index, which captures the top 85% of U.S. market cap. That makes it a little more diffuse than the S&P 500 with 660 stocks instead. It's low-cost and low-turnover, so a good bet. Needless to say the end result is quite like the S&P 500, so there wouldn't be much point of owning both.

 WCM Alternatives Event-Driven (WCEIX) starts out with a Bronze rating. The fund is a more aggressive version of Silver-rated  Merger Fund (MERFX). It begins with a chunk of the highest-yielding merger arbitrage positions in the Merger Fund. Then it adds other special situation bets not found in Merger fund such as spin-offs, restructurings, and REIT conversions. The result has higher return potential but also higher volatility.

 Franklin Strategic Income (FRSTX) earned a Bronze rating for its wide-ranging bond strategy. The fund mixes high-yield bonds, nondollar sovereign bonds, and bank loans. There's a fair amount of credit risk here as the average credit quality is BB, but the fund has still avoided extremes. It lost 10.94% in 2008, which is about 4 percentage points better than the typical multisector bond fund lost that year. The fund has seasoned managers in Eric Takaha and Chris Molumphy. Takaha runs the Silver-rated  Franklin High Income (FHAIX).

Upgraded Value Fund
We also upgraded  TIAA-CREF Large-Cap Value (TRLIX) to Bronze from Neutral. The fund has quietly improved under Richard Cutler. As you'd expect from TIAA-CREF, the strategy is rather mild-mannered. Cutler runs a diffuse portfolio in which he builds positions gradually. Yet that's worked just fine. The fund has returned an annualized 9.83% versus 8.17% for the category over Cutler's tenure beginning December 2002.

Six Downgrades
We lowered  Calamos Market Neutral (CVSIX)  to Neutral from Bronze in the wake of lead manager Christopher Hartman's departure. The timing is tough because the firm has lost a number of important investment professionals lately and this fund's asset base has soared from $2.5 billion to $4 billion since it reopened in 2013.

For  Franklin Rising Dividends (FRDPX), the combination of soaring assets and flagging performance led us to drop the fund to Neutral. Over the past five years, the fund's asset base has grown tenfold, while the number of holdings has grown to 70 from and the average market cap has quadrupled to $42 billion.

We lowered  MainStay ICAP International (ICEUX) to Bronze on the news that comanager Tom Wenzel had stepped down for health reasons. Comanager Jerry Senser remains in place, however, so we still have faith in the fund and the process.

 MainStay High Yield Corporate Bond (MHCAX) manager Matt Philo's departure led us to lower the fund's rating from Bronze to Neutral. New manager Andrew Susser has been with subadvisor MacKay Shields since 2006 but we'll want to see what changes he has in store for the fund.

We're quite patient, but that doesn't mean we are oblivious to performance. We lowered  Thornburg International Value (TGVAX) as its slump has deepened. The fund may have been a victim of its own success as past returns led to a gigantic surge in assets. The fund went from $2 billion in 2005 to $31 billion in April 2011. Not coincidentally, the fund has lagged its peer group in recent years. Flows have reversed and the fund is now shedding $1 billion a month.

 Wasatch Long/Short has suffered a drought that led us to lower the fund a notch to Bronze. The fund's sector and stock selection have been lacking and we felt that Bronze was a better fit for the fund's profile.

Coverage Initiated at Neutral
 PIMCO StocksPlus Absolute Return Short Strategy (PSTIX) has some big strengths and big weaknesses. The fund aims to replicate the inverse of the S&P 500 by using futures and swaps. Then it aims to add value by investing collateral in a portfolio similar to  PIMCO Unconstrained Bond (PUBAX). The good news is you have a strong firm like PIMCO behind a short fund. The bad news is that it really works only as a short-term bet. The unusual news is that most of the fund's assets are owned by the allocation funds managed by Rob Arnott.

Fund Moved to Not Ratable
Bond fund disclosure rules are rather lacking so to get a complete picture of a fund's risk profile, we need a fund to provide detail on portfolio exposures and performance attribution.  DoubleLine Total Return (DBLTX) hasn't given us sufficient information about portfolios and personnel to give the fund a rating. Performance has been great but due diligence isn't optional. Thus, the fund is labeled Not Ratable.

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.