Just as a strong investment process can compensate for an equity strategy’s mediocre management team, an impressive team can overcome process weaknesses. To find examples of this, I looked for active equity funds with Morningstar Analyst Ratings of at least Bronze, and Above Average or High People Pillar ratings—but Average, Below Average, or Low Process ratings. These situations aren’t common since investment teams and their approaches are often intertwined.
Here are a few examples.
American Funds Investment Company of America AIVSX
Independent, experienced managers who invest a lot of money in this strategy earn it an Above Average People rating. American Funds’ multimanager system reduces key-person risk and fosters stability. James Lovelace and Donald O’Neal have served here for more than 30 years and in the industry for 37. The team’s remaining members average 29 years of industry experience. Eight invest more than $1,000,000 in the strategy.
The strategy, however, gets an Average Process Pillar rating because the team has trouble striking a balance between the fund’s growth and income mandates. The team has leaned more toward growth, which hasn’t helped during 2022′s selloff. Meanwhile, to keep its yield above the S&P 500′s, the team has added to higher-dividend yielding stocks that haven’t performed well enough to offset the portfolio’s low- or nondividend payers.
Vanguard International Value VTRIX
This strategy’s experienced and deep subadvisor teams support its Above Average People rating. Lazard’s Michael Fry and Michael Bennett both have more than 25 years of industry experience and work with dozens of emerging markets and sector analysts. Sprucegrove’s Shirley Woo and Arjun Kumar have more than 20 years of firm experience and the support of 11 generalist analysts. Rama Krishna and Steve Morrow of ARGA Investment Management have more than 25 years of industry experience and a 26-member analyst team.
The three subadvisors’ approaches are unique, but sometimes at odds with each other, so together they warrant an Average Process rating. Lazard looks for highly profitable companies trading at slight discounts across the value-growth spectrum. This can offset ARGA’s deep-value approach, where the managers prefer cheaper names with sound business models. Sprucegrove is a relative-value shop like Lazard, though more valuation-sensitive.
Eventide Healthcare & Life Sciences ETIHX
Manager and firm co-founder Finny Kuruvilla’s multiple academic degrees, experience, and similarly credentialed analysts earn this sector fund an Above Average People Pillar rating that helps one share class of this volatile fund earn a Bronze rating. Kuruvilla, who has a medical degree and a doctorate in chemistry and chemical biology from Harvard, has led this strategy since 2012 and its sibling Eventide Gilead ETGLX since 2008. Five analysts with healthcare backgrounds, three of whom also have doctorates, help him. Two analysts departed the strategy and firm this year, but promising new hires stepped in.
Kuruvilla’s approach is risky, though, warranting an Average Process rating. He tends to favor early-stage biotech companies with promising treatments. Many such firms are years away from marketable products or even revenue and earnings. Kuruvilla also invests up to 15% of assets in illiquid private companies, which layers on risk.
Hartford Core Equity HGIYX
Lead manager Mammen Chally’s ample experience and support earn the strategy its Above Average People rating. Chally joined subadvisor Wellington Management in 1994 and has managed several equity strategies over his tenure. He joined here in 1998 and took lead responsibilities in 2009. Comanagers David Siegle and Douglas McLane, who were both analysts here before becoming managers in 2017, have more than 20 years of industry experience. Kerry Anne Bradford joined the team as an analyst in 2016 after a five-year stint on Wellington’s central analyst team.
Chally doesn’t stray far from his S&P 500 prospectus benchmark, which limits his opportunity set and warrants an Average Process rating. In 2014, Hartford asked Wellington to temper the strategy’s already limited risk profile by keeping volatility relative to the index (average beta) under 0.9. This keeps risk under control but limits the strategy’s ability to outperform. For example, the strategy’s largest sector bet was a 2.1 percentage point overweight to healthcare as of August 2022, and its tracking error over the last year through September 2022 was 1.9%.
Correction: (Nov. 11, 2022) A previous version of this article misspelled the name of Michael Bennett as Bennet, and Sprucegrove as SpruceGrove.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.