Fund Spy: Morningstar Medalist Edition

June Takes a Shine to Silver-Rated Funds

Shannon Yan

In June, Morningstar manager research analysts affirmed the Morningstar Analyst Ratings of 142 funds, upgraded the ratings of 10 funds, downgraded the ratings of two funds, placed one fund’s rating under review, and assigned new ratings to seven funds. Below are some of June’s highlights, followed by the full list of ratings changes.

Upgrades
 T. Rowe Price Overseas Stock (TROSX) and  T. Rowe Price Institutional International Core Equity (TRCEX) have posted competitive risk-adjusted results in variety of climates since manager Ray Mills took the helm in 2006. Mills applies a risk-conscious and wide-ranging approach here and at a similarly managed foreign large-blend separate account, which has a strong record dating back to 2000. Reasonable fees and T. Rowe Price’s exceptional analytical resources add to the funds’ appeal, resulting in a Morningstar Analyst Rating upgrade to Silver from Bronze.

 Vanguard Global Equity (VHGEX) combines three distinct approaches of longtime subadvisors Baillie Gifford, Acadian, and Marathon. The result is a potent but well-diversified blend across the market-cap and style spectrums. The fund has inched from blend into growth territory since its current lineup took shape in 2012, but style migration alone doesn’t explain its success. In fact, the fund has handily beaten its MSCI ACWI All Cap benchmark as well as the MSCI ACWI Growth Index since 2012, while posting lower volatility than both. Plus, it’s one of the cheapest offerings in the Morningstar Category. The fund’s rating was raised to Silver from Bronze.

 PGIM Short-Term Corporate Bond (PBSMX) boasts a large roster of experienced managers and researchers. The team’s accurate sector calls during the credit crisis attest to their aptitude. They stick to a methodical process with minimal focus on yield-curve or duration bets. The fund has more credit and interest-rate risk than the typical short-term bond peer, which can hurt during stress periods or when interest rates rise, but the fund has more than made up for such tumbles over the long haul. The fund’s rating was bumped up to Silver from Bronze.

 JPMorgan Growth And Income's (VGRIX) rating was upgraded to Silver from Bronze. It has many merits, including a recent fee cut, an experienced team, and a patient approach to income. The portfolio has treaded lightly in traditionally yield-rich sectors in recent years due to valuations, but it still tilts toward quality stocks and has benefited from strong stock-picking.

 Diamond Hill Corporate Credit (DSIAX) is a unique proposition within the high-yield bond category. The management team uses a contrarian approach to build a benchmark-agnostic portfolio and isn’t afraid to hold concentrated positions (up to 7%-8%) in their best ideas. While that approach courts considerable issue-specific and liquidity risk, the team balances it with thorough research, disciplined valuation, an eye for high credit quality, and a willingness to hold cash. Not surprisingly, the fund has gained grounds versus peers in periods of market stress. A competitive price tag doesn’t hurt, either. The fund’s rating was raised to Bronze from Neutral.

Downgrades
 DFA US Small Cap Value’s (DFSVX) 0.52% expense ratio, while still low relative to the small-cap value category, looks increasingly uncompetitive relative to cheap index options. Plus, the fund ventures further into the deep-value, micro-cap space than most rivals, posing higher risk. As a result, its rating was lowered to Silver from Gold.

New Ratings
The managers of  Hartford Schroders US Small/Mid-Cap Opportunities (SMDIX) and  Hartford Schroders US Small Cap Opportunities (SCUIX) look for a mix of undervalued or stable growth, and turnaround plays, while aiming for a low-beta portfolio. Indeed, the funds have been resilient in market drawbacks and have posted strong risk-adjusted results over lead manager Jenny Jones’ tenure. It’s a plus that Jones brought on Robert Kaynor in 2013; he is now comanager and will be her eventual successor. Thoughtful succession planning and a sensible process led to the funds’ inaugural rating of Silver.

 Harbor Strategic Growth (HISWX) receives an inaugural rating of Bronze. A seasoned team from subadvisor Mar Vista Investment Partners searches for companies with competitive advantages and management with a history of good capital allocation. Each potential investment is scrutinized by multiple team members, including a devil’s advocate who attempts to poke holes in the analysis, to ensure there’s a margin of safety. The team invests with patience and conviction, and the fund has an appealing risk/reward profile.



 

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