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Fund Spy: Morningstar Medalist Edition

7 Fund Analyst Rating Downgrades in May

We lowered our ratings on funds from Franklin, Morgan Stanley, and Weitz, and initiated ratings on funds from Ariel and Seafarer.

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May was a relatively quiet month in terms of changes to the Morningstar Analyst Ratings. There were no upgrades. Seven funds from four fund families were downgraded. Morningstar initiated new ratings on two funds. The majority of funds saw no changes, with ratings for 88 funds and two target-date series reaffirmed during the month. Below are some highlights. All changes are listed in the table below.

A handful of downgrades came from one team at Morgan Stanley that uses the same process at three growth funds spanning the Morningstar Style Box.  Morgan Stanley Institutional Growth (MSEQX),  Morgan Stanley Institutional Mid Cap Growth (MPEGX), and  Morgan Stanley Institutional Small Company Growth (MSSGX) all moved to Silver from Gold because of their volatile nature. Manager Dennis Lynch and team gravitate toward disruptive growth companies and were early investors in Internet-related names such as  Facebook (FB),  LinkedIn (LNKD), and  Twitter (TWTR). The team takes a long-term view, and its bets have worked out more often than not over the long run, but the nature of the fund leads to bumpy performance, driving the downgrade. Still, Lynch and team are experienced, fees are competitive, and the process is thoughtful and well executed.

Katie Rushkewicz Reichart does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.