62 New Fund Analyst Ratings in March

A Busy Start to Spring In March, Morningstar manager research analysts upgraded the Morningstar Analyst Ratings of seven funds, downgraded four funds, affirmed ratings on 79 funds, three target-date series, and one exchange-traded fund, assigned new ratings to 29 mutual funds and 33 exchange-traded funds, and placed one fund under review. Below are some of March's highlights, followed by the full list of ratings changes.

Upgrades

Fidelity Overseas

FOSFX was upgraded to Silver from Bronze thanks to manager Vincent Montemaggiore's solid execution and consistent research process. Montemaggiore, who took over this fund in January 2012, adheres to a value- and quality-oriented philosophy, looking for temporarily undervalued firms that can consistently generate high returns on capital during a three- to five-year period. This focus on quality aided the fund as foreign markets sold off in 2015 and 2016, as did its below-average emerging-markets exposure compared with peers. Montemaggiore's strong stock selection across sectors, particularly in financials and consumer defensive names, has given the fund an edge over its benchmark and peers. From his start date through March 2016, the fund's 10.1% annualized gain beats both the MSCI EAFE Index's 6.7% and the average foreign large-growth peer's 6.0%.

BlackRock Strategic Income Opportunities

BSIIX was upgraded to Silver from Bronze because of the disciplined, risk-focused process plied by comanagers Rick Rieder and Bob Miller, as well as a concerted effort to keep fees low as fund assets rise. Rather than make large sector and position bets, the managers spread risk across sectors, regions, and issuers and use the fund's flexibility to take advantage of a variety of market environments. While the fund has no benchmark, Rieder and Miller manage it with the goal of protecting investors against rising rates while providing returns uncorrelated with traditional fixed-income indexes. As such, the fund's duration is kept within a tight range of zero to three years. The duo have a wide investable universe, recently adding to high-yield bonds (to benefit from a "pro-growth" environment) and also to emerging markets such as Brazil and India because of country-specific catalysts.

Downgrades

AllianzGI NFJ International Value

ANJIX was downgraded to Bronze from Silver as its 2016 performance fell short of expectations, raising questions about the fund's investment process. The team-managed fund, led partially by NFJ co-founder Ben Fischer, focuses on stocks that pay a dividend and trade at an attractive valuation relative to industry peers. Following a weak showing in 2015, stemming from its deeper-value mentality and emerging-markets positioning, the fund struggled again in 2016 as value stocks roared back. This environment should have been a tailwind for the fund, but its momentum component, which avoids stocks with poor price momentum during the past 12 months, triggered sells after Japan's move to negative interest rates and the Brexit referendum. These types of stocks rebounded quickly, as did other value stocks that were screened out. Fund management remains stable, but recent results illustrate the patience required with the strategy.

New Ratings

Aberdeen U.S. Small Cap Equity

GSCIX benefits from a stable team and a proven, high-conviction approach to small caps, earning it an inaugural rating of Bronze. The fund is team-managed by Aberdeen's U.S. equity group, headed by Ralph Bassett. Bassett has been a listed manager since 2008, shortly after Aberdeen acquired the fund from Nationwide. In that time, the style-agnostic, low-turnover fund has bested its Russell 2000 benchmark and average small-growth Morningstar Category peer, with superior risk-adjusted metrics as well. The fund's assets have grown significantly as strong performance has attracted large inflows, but its management team is keeping a close eye on capacity.

Parnassus Mid-Cap

PARMX features a distinct, ESG-focused investment process, a management team with a record of strong execution, and below-average expenses, earning it a Silver rating. Lori Keith and Matthew Gershuny have managed the fund since October 2008, taking over from firm founder Jerry Dodson. The duo are alumni of the firm's research internship program and together ply a sensible ESG process that focuses on quality and downside risk. They winnow down an investable universe of roughly 400 stocks to a portfolio of 40, paying attention to each stock's worst-case scenario projection. This consideration is evident in the fund's performance pattern. From their start date through March 2017, the fund's 12.3% annualized return edges the Russell Mid Cap Index and handily beats the average mid-blend peer's 10.2%. Risk-adjusted returns are also strong, with the fund posting better downside protection than the category and index during the managers' tenure.

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