The 10 Biggest Funds to Get Downgrades in 2018

A version of this article was originally published in the October 2018 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.

Last week I shared our biggest upgrades with you, so that means this week it's time to get sad and look at the largest funds whose Morningstar Analyst Ratings were downgraded this year. Sorry. (Please click through to the analysis to get the whole scoop on these funds.)

Vanguard Short-Term Investment-Grade VFSTX

and Vanguard Intermediate-Term Investment-Grade VFICX

Downgraded to Bronze from Silver

Do Vanguard's bond managers matter? You bet. Low fees help, but management is still important. Greg Nassour was these funds' lead manager and co-head of Vanguard's U.S. corporate-bond desk. He left in April. Vanguard appeared to be surprised by the move. It named two comanagers while it looks for a permanent replacement.

Harbor Capital Appreciation HACAX

Downgraded to Silver from Gold

We've grown concerned that this fund doesn't have a lot to add outside of technology and healthcare. Those sectors have been market darlings, but we know that doesn't last forever. Of course, a Silver rating means we still have faith in the core team and process here.

Fidelity Puritan FPURX

Downgraded to Neutral from Silver

Ramin Arani did an outstanding job of stock selection and asset allocation at this fund. Unfortunately for shareholders, Arani is going to retire at year-end. Dan Kelley of Neutral-rated

Harbor International HAINX

Downgraded to Bronze from Silver

Disappointing performance and concerns about strategy tweaks spurred Harbor to fire Northern Cross and replace it with Marathon Asset Management. Marathon divvies up the portfolio to nine managers who run separate, regionally focused sleeves. The comanagers look for strong corporate management at firms that are underappreciated by the stock market. Marathon has a strong 30-year track record of investing in this strategy on the separate-account side.

DFA US Small Cap Value DFSVX

Downgraded to Silver from Gold

We lowered the fund a notch because its fee hasn't kept pace with falling expense ratios on both the active and passive side.

Artisan International ARTIX

Downgraded to Bronze from Silver

A steady stream of departures in the manager and analyst ranks prompted us to lower the fund a notch. In addition, the fund's fees haven't kept pace with the trend and look pricier than they once did.

T. Rowe Price International Value Equity TRIGX

Downgraded to Neutral from Bronze

This fund's manager left abruptly, and T. Rowe Price named Sebastien Mallet to replace him. Mallet also runs T. Rowe Price Institutional Global Value Equity PRIGX, and the firm said it has not decided whether he will continue to run both or just manage one. Mallet is an experienced value investor who should do well if he stays here, but there's too much uncertainty in the meantime.

Oppenheimer Global OPPAX

Downgraded to Neutral from Silver

At Oppenheimer's international funds, it really is about the lead manager. It's a little bit of a throwback to lean so heavily on one person, but it generally has worked pretty well here. That said, Rajeev Bhaman's pending retirement in March 2019 is a real blow to this fund's appeal.

Vanguard FTSE All-World ex-US Small-Cap Index VFSVX

Downgraded to Bronze from Silver

We lowered this strategy because it has big weightings in materials and energy--two of the most volatile sectors. That makes it more volatile than most of its peers.