Manager Departures and Portfolio Shifts Meant Ratings Changes in November

November was a somewhat quieter month for ratings changes after Bill Gross' departure from PIMCO set off a flurry of activity in October. In all, the Morningstar Analyst Ratings of six funds were downgraded, while one fund and a series of 10 target-date funds were upgraded. We'll tackle them alphabetically.

Multialternative fund  Absolute Strategies (ASFIX) had its rating lowered to Neutral from Bronze. Management is making a large bet against the market, which has effectively resulted in a negative beta (thus, the fund will generally fall when the market rises) and may prove too risky for investors to stomach. High fees relative to peers don't help the fund's cause.

The rating of  Columbia Acorn (ACRNX) was lowered to Neutral from Bronze in the wake of personnel and portfolio changes that detract from our confidence. Longtime skipper Chuck McQuaid retired in April 2014, and three analysts left the firm in 2013. Meanwhile, the fund's former resilience in downturns hasn't been in evidence in recent years, in part due to the elimination of its cash stake, which used to hit 15% at times.

The impending departure of veteran manager Chuck Myers drops the rating of  Fidelity Small Cap Value (FCPVX) to Bronze from Silver. Comanager Derek Janssen, who will become the lead manager in January 2015 and the fund's sole skipper one year later, has worked on Fidelity's small-cap team since 2007. But his track record here is short--he became comanager in January 2013--and Myers (who will continue to manage  Fidelity Small Cap Discovery (FSCRX)) has continued to run most of the fund during Janssen's tenure.

A hefty fee cut increases the appeal of the 10 John Hancock Retirement Living target-date funds (see the table for names and ticker symbols). In October 2014, management instituted fee waivers on the funds that lowered their expense ratios by 20-26 basis points. On an asset-weighted basis, the funds' share classes are on average cheaper than 75% of their similarly sold peers. That's an important advantage in a crowded field.

Another casualty of Bill Gross' exit,  PIMCO Fundamental IndexPLUS AR (PIXAX) saw its rating drop to Neutral from Silver. Gross was the sole manager here from the fund's 2005 inception until he quit the firm in September 2014. New skippers Mohsen Fahmi and Saumil Parikh have plenty of investment experience but lack distinguished public track records. A partial strategy change in 2013 lends more uncertainty to the fund's prospects as well.

 Principal Diversified Real Asset (PRDAX) was upgraded to Bronze from Neutral. It employs an inflation-fighting strategy that makes performance comparisons with most conservative-allocation funds difficult, but we're impressed with the mix of strategies and subadvisors that have been added to the portfolio since its 2010 inception.

The departure of a veteran manager Whitney George means downgrades for  Royce Low Priced Stock (to Neutral from Silver) and  Royce Premier (RYPRX) (to Silver from Gold). George was the lead manager on Royce Low Priced Stock and has been replaced by James Stoeffel, the fund's associate manager since 2013, and three assistant managers. While Stoeffel previously earned a solid record at CRM Small Cap Value (CRISX), he'll have hefty outflows to deal with here in the wake of the fund's poor recent performance, and the portfolio is expected to change significantly. Meanwhile, Premier will now be managed solely by firm founder Chuck Royce, a manager here since the fund's 1991 inception.

 

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.