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Fund Spy: Morningstar Medalist Edition

July Morningstar Analyst Ratings Upgrades, Downgrades, and New to Coverage

We share some highlights from the month.

Morningstar assigned Morningstar Analyst Ratings to 731 fund share classes, exchange-traded funds, and separately managed accounts/collective investment trusts in July 2020. Of these, 418 maintained their previous ratings, 52 were upgraded, 200 were downgraded, seven were placed under review owing to material changes, and 54 were new to coverage.

When looking only at distinct strategies, Morningstar analysts assigned ratings to 168 individual strategies. Of these, nine were new to coverage, while the remaining strategies had at least one investment vehicle previously covered by a Morningstar analyst. Below are a few highlights of the upgrades, downgrades, and new coverage for the month of July.

T. Rowe Price Global Technology (PRGTX) has been upgraded to Bronze from Neutral, owing to a Process Pillar upgrade to Above Average from Average. Alan Tu took the reins in April 2019, funneling the contributions of 22 analysts into a portfolio of tech names, including technology-heavy companies like (AMZN) and Facebook (FB) that are not included in its pure-tech MSCI ACWI/Information Technology Index benchmark. Tu’s background as an analyst has also brought the strategy closer to the standard T. Rowe Price approach of focusing on companies with long-term competitive advantages. The strategy reopened to new investors in April 2020.

Natixis Oakmark International (NOIAX) had its A share class upgraded to Gold from Silver under Morningstar’s enhanced ratings methodology, which rates share classes separately to reflect expense ratio differences. Lead manager David Herro and a team of veteran analysts and managers have steered this version of Harris Associates' absolute value style through various volatile patches over the years. The strategy isn’t afraid of controversy and maintains a distinctive portfolio, often veering substantially from its MSCI World ex USA Index benchmark, but its seasoned team and strong will in sticking to its investment philosophy earn it High Process and People Pillars. Although the market volatility of the first half of 2020 took a considerable toll on this more aggressive strategy, we nevertheless expect the team’s strong conviction in its contrarian, deep-value stock picks to support a strong advantage going forward.

Sequoia (SEQUX) was downgraded to Neutral from Bronze. This aligns with a Process Pillar downgrade to Average from Above Average, as process tweaks since the year-end 2018 departure of former manager David Poppe have not been fully tested. Furthermore, the fund has courted price risk in recent years despite a reputation as a value-oriented fund. Nevertheless, the fund continues to earn an Above Average People Pillar rating, in large part because of its leadership of four comanagers who are well established at the firm but nevertheless only in their 40s, suggesting stable leadership for the foreseeable future. The firm’s reputation has also attracted a strong team of eight generalist analysts working with strong internal resources.

Vanguard Total Bond Market Index (VBMFX) saw its Investor shares downgraded to Bronze from Silver because of the share class’ higher fees. Nevertheless, the strategy maintains its Above Average People and Process Pillars. Vanguard Bond Index Group head Joshua Barrickman has led this strategy since 2013. He leads a team of sector specialists who employ representative sampling to track the performance of the Bloomberg Barclays U.S. Aggregate Float-Adjusted Index, which includes investment-grade USD-denominated bonds with at least one year until maturity. In keeping with its market-weighted index, this has yielded a conservative portfolio that, while limiting returns, also cuts downside risk.

New to Coverage
BlackRock Systematic Multi-Strategy (BIMBX) has been added to coverage, with its two cheapest share classes earning a Morningstar Analyst Rating of Bronze and its most expensive earning a rating of Neutral. Hedge fund veteran Tom Parker is a strong presence as this strategy’s lead manager. His extensive experience in systematic fixed-income and hedge fund investing goes back nearly 40 years and includes managing BlackRock Fixed Income Global Alpha--the firm’s largest hedge fund--that shares some elements with this strategy. He’s backed by more than 50 investment professionals averaging 14 years of investment experience--valuable tenure that backs a robust research agenda. Half of this multistrategy portfolio’s risk budget is invested across five broad fixed-income sectors, while the other half goes to a market-neutral equity sleeve to act as ballast and a relative-value macro sleeve that seeks return in times of increased volatility.

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