Fund Spy: Morningstar Medalist Edition

May Brings More Upgrades Than Downgrades

Shannon Yan

In May, Morningstar manager research analysts affirmed the Morningstar Analyst Ratings of 141 funds and two target-date series, upgraded the ratings of 11 funds, downgraded the ratings of 10 funds, placed six funds’ ratings under review, and assigned new ratings to five funds. Below are some of May’s highlights, followed by the full list of ratings changes.

Upgrades
 MFS Value (MEIAX) was raised to Gold from Silver for longtime lead manager Steven Gorham’s sound execution of a straightforward process. The fund’s quality- and long-term orientation has been a strength in down markets, and that resilience largely explains its solid record relative to the benchmark over Gorham’s tenure. The fund’s $80 billion asset base bears watching, but MFS has thus far limited new institutional accounts. Competitive fees also help.

 Hartford Equity Income (HQIYX) was upgraded to Silver from Bronze for its reliability under Wellington Management’s Michael Reckmeyer. A stickler for dividends, valuations, and healthy balance sheets, Reckmeyer focuses on above-average yield without neglecting total return. The fund treads heavily in yield-rich sectors such as utilities and telecom relative to peers, but Reckmeyer can also be contrarian, adding to out-of-favor but solid stocks. The fund is prone to lag in rallies, and it could be cheaper when interest rates spike. But Reckmeyer’s acumen continues to serve investors well.

Increased confidence in  Alger Small Cap Focus (AOFIX) management team drove an upgrade in its ratings to Silver from Bronze. Manager Amy Zhang helped to amass one of the small-growth category’s best risk-adjusted records at Gold-rated  Brown Capital Management Small Company (BCSIX), and she has been equally skillful here plying a similar revenue-centric approach since 2015. Zhang’s distinct approach leads to a portfolio full of healthcare and technology names with plenty of price risk, but her penchant for cash-rich companies with good balance sheets provides ballast. A recent fee cut also bodes well for investors.

 BlackRock Multi-Asset Income (BIICX) has consistently delivered top-quintile income while outperforming the average tactical-allocation peer on a risk-adjusted basis. The fund’s managers make effective use of BlackRock’s vast and distinctive investment teams, who run separate sleeves for this fund, and the firm’s topnotch risk department. Indeed, the fund has kept its volatility well below that of its benchmark. Plus, fees are razor-thin versus peers. Taken together, the fund’s rating was bumped to Silver from Bronze.

Downgrades
Increasingly uncompetitive fees have taken some of the shine off  Fidelity Limited Term Municipal Income (FSTFX), which was downgraded to Silver from Gold. Relative to peers, the fund steers clear of securities that can add volatility, focusing instead on higher-quality municipal sectors that offer stable cash flows. This cautious approach has produced a solid long-term record but also puts a premium on the fund’s price tag, which has stayed relatively flat as the competitive universe has cheapened.

 AB Global Bond (ANAGX) was dropped to Bronze from Silver as it has lost some of its competitive edge. The fund sticks mainly to developed-markets sovereign bonds and investment-grade corporate credit and hedges out most currency risk, and its allocations haven’t shifted dramatically over time. The experienced team has exercised sound judgment on the margin, especially over currency positions. But under its current mandate, the fund has fallen behind a subgroup of USD-hedged world-bond peers on a risk-adjusted basis.

Concerns about  Oppenheimer Global's (OPPAX) impending lead manager transition led to a downgrade in its rating to Neutral from Silver. The fund’s long-tenured lead manager, Rajeev Bhaman, the key player behind its admirable record since 2004, announced he will retire in March 2019. At that time, John Delano, who has been an analyst here since 2010 and a comanager since 2017, will become the fund's sole manager. Delano says he will retain the fund’s strategy, which focuses on well-run, durable innovators. Still, with no public record of his own, Delano has yet to prove himself on the fund after the transition.

New Ratings
 Morgan Stanley Institutional Advantage (MPAIX) received an inaugural rating of Silver, as lead manager Dennis Lynch and his team have long applied an appealing high-conviction and benchmark-agnostic approach to various funds across the market-cap spectrum. They foster idea-generation with a reading club and limit trading to avoid succumbing to the market's short-term whims. This fund leans toward established growers with enduring competitive advantages and has kept volatility in check. While fees aren't appealing because of the fund's small size, its strong risk-adjusted record works in its favor.



Shannon Yan does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.