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Fund Spy: Morningstar Medalist Edition

Five Upgrades and Downgrades to Kick Off Fall

In addition to rating changes, 88 ratings were affirmed and 10 new ratings debuted.

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In September, Morningstar manager research analysts affirmed the Morningstar Analyst Ratings of 88 strategies, upgraded the ratings of five strategies, downgraded the ratings of five strategies, placed two strategies’ ratings under review, and assigned new ratings to 10 strategies. Below are some of September’s highlights, followed by the full list of ratings changes. 

The ratings of Fidelity Emerging Asia (FSEAX) and  Fidelity Advisor Emerging Asia (FEAAX) were bumped up to Bronze from Neutral. It is increasingly clear that the strategies’ manager, John Dance, has the skill to succeed and that his stock-selection approach has merit. Although lead manager for just 19 months, his full resume inspires confidence. Dance is a Fidelity veteran and has 14 years of investment experience overall, including time as the firm’s global consumer sector leader and a stint running the Asia sleeve of a Fidelity international-stock strategy. He has also produced impressive results during his five-year tenure at  Fidelity Pacific Basin (FPBFX), which invests in many of the same markets as this strategy. 

The rating for  PIMCO Active Bond ETF (BOND) rose from Neutral to Silver as it became clear that new management has consistently implemented a new steady-income-producing strategy since May 2017. The goal behind bringing in experienced managers David Braun, Dan Hyman, and Jerome Schneider was to align the team with the strategy’s new goals. PIMCO added Braun to this team in part based on his expertise in managing other tax-aware and income-focused portfolios. Although he doesn't have a public record, PIMCO has a history of producing great results with other income-focused portfolios, and Hyman, Schneider, and the rest of the PIMCO team supporting this offering have delivered excellent results at other strategies. 

The rating for  PGIM Jennison Growth (PJFAX) was lowered to Silver from Gold because it lacks range outside of its go-to sectors. The managers have long favored technology and consumer cyclical stocks and have made some good picks over the years. But the strategy has showed limited willingness or ability to shift that posture. Indeed, the tech and consumer cyclical sectors composed 62% of assets as of August relative to the Russell 1000 Growth Index’s 54%. Combined with the portfolio’s high price multiples, that aggressive stance has dented the strategy’s risk-adjusted returns. The firm has talent to draw on in other sectors, but this team has not always availed itself of this effectively. For example, healthcare analysts David Chan and Debra Netschert have had success running Silver-rated  PGIM Jennison Health Sciences (PHSZX), but some of their best ideas from that strategy haven’t made it into this one. This strategy has and likely will continue to live or die by its tech and consumer picks.

 T. Rowe Price Real Estate's (TRREX) rating dropped to Bronze from Gold due to an upcoming manager change. David Lee, who has managed this strategy since its 1997 inception, announced he will retire at the end of 2018. The strategy has achieved a strong and consistent record with Lee at the helm, ranking in the top 20% of the real estate Morningstar Category over his 21-year tenure. That record, however, will no longer be directly relevant once Lee departs. Lee’s replacement will be Nina Jones, who joined as an analyst for this strategy in 2008 and took over  T. Rowe Price Global Real Estate (TRGRX) in 2015. Jones had a strong record picking stocks as an analyst, but managing a strategy is a different matter. With just a short tenure at T. Rowe Price Global Real Estate, she has more to prove. 

New Ratings
 Neuberger Berman Intrinsic Value (NINLX) features a seasoned team, unique style, and niche portfolio with respectable long-term returns, earning it an inaugural rating of Bronze. Manager Ben Nahum has worked on the strategy since 1997. He fleshed out a team of five analysts while at David J. Greene & Co., which Neuberger Berman acquired in 2008. Veteran analysts Amit Solomon and James McAree joined Nahum as comanagers in 2010. Each team member has spent at least 11 years with this group and more than two decades in the industry. The team employs a contrarian, intrinsic-value approach that includes activist engagement to unlock firms’ value. Their style often courts firms with weak apparent fundamentals, but good stock-picking has built portfolios that have yielded solid long-term total and risk-adjusted results. This strategy is in good hands.

Connor Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.