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3 Biggest Mutual Fund Downgrades of 2023

We took these well-known funds down a notch or two.

3 Biggest Mutual Fund Downgrades of 2023

Russel Kinnel: I recently wrote about five big upgrades, so today I’ll be a downer—I’ll look at three downgrades from this year.

3 Biggest Mutual Fund Downgrades of 2023

  1. American Funds AMCAP AMCAP
  2. Alger Mid Cap Focus AFOIX
  3. T. Rowe Price Small-Cap Stock OTCFX

First up is American Funds AMCAP, which we downgraded from Gold to Bronze. American Funds tend to change at a glacial pace. With many managers running independent sleeves and a number of experienced managers waiting in the wings, we don’t often get worried about changes at American Funds. But quite a lot has been in flux at this fund. The fund has had four managers retire since 2020. In addition, the firm tweaked strategies to encourage managers to get their sleeves fully invested, and at the same time, it allowed managers to buy more small, emerging growth companies with less of a track record of earnings. So, in sum, it’s kind of a new animal. We like it enough to keep its A shares at Bronze, but it has to prove itself all over again.

A brutal stretch of performance has led us to cut Alger Mid Cap Focus from Bronze to Neutral. We had high hopes for this fund, as manager Amy Zhang had been an adept investor in small-growth names. But results have been poor at this fund, and her strategy doesn’t look like it did in small growth. She’s had much higher turnover and seems to be plying a more aggressive momentum strategy at this fund.

Finally, a manager change has led us to downgrade T. Rowe Price Small-Cap from Silver to Bronze.

Associate manager Alex Roik will become lead manager on Jan. 1, 2024, as Frank Alonso will step down. Roik is a rising star at T. Rowe Price, but this will be his first time as a lead manager on a fund. We’ll be watching closely to see if he makes any strategy changes and to see how the fund performs under his leadership.

Watch “3 Great Aggressive Growth Funds” for more from Russel Kinnel.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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