These 5 Funds May Be Affected By Broader Company Issues

When issues crop up at a fund’s parent firm, they can wind up negatively impacting the fund. Let’s take a closer look at a half dozen funds whose Parent Pillar ratings were recently downgraded.

American Beacon, the firm behind American Beacon International Equity AAIPX and American Beacon Large Cap Value AAGPX, saw its Parent rating downgraded to Average from Above Average because of an uncertain ownership picture and a leadership change. Private equity firm Kelso & Company gained control in 2015, and American Beacon proceeded to launch a wave of new funds (many of which have since been liquidated). More recently, Kelso has unsuccessfully attempted to exit its position, and American Beacon CEO Gene Needles left suddenly in 2022. It’s possible that a new owner will try to expand the lineup, too.

How do these issues impact these two funds? Both are managed by subadvisors, which are arguably less affected by the problems at American Beacon. However, another lineup expansion could leave less time for American Beacon’s manager research team to perform due diligence on subadvisors, and the lineup’s fees have already failed to decline as much as those of many peers.

Akre Focus AKREX is run by a small team dedicated only to this concentrated equity fund. However, the transition from founder Chuck Akre, who retired in 2020, has been rocky. All experienced investment personnel other than John Neff, Chuck Akre’s designated successor at the time of his retirement, have since left. Thus, Neff is backed by just two relatively new analyst hires. This turnover drove a downgrade of the firm’s Parent rating to Average from Above Average, and the fund’s People rating dropped to Average as well. The team’s distinctive, well-regarded investment process remains in place, but the fund’s retail share class earned a Morningstar Medalist Rating of Neutral as of April 2024.

Macquarie, the parent firm of Delaware Mid Cap Growth Equity DFCIX, has few clear strengths, and its equity teams have generated uneven results. That includes the team for this fund, which posted bottom-decile results within its Morningstar Category in both 2021 and 2022. Thus, we downgraded the Parent rating to Average from Above Average. The fund’s A shares earn a Bronze rating as the team’s strategy still holds appeal. The team is willing to pay high valuations for financially sturdy firms but believes it will be rewarded by hanging on to the stocks for the long haul. That approach has been distinctly out of favor at times in recent years. It’s not clear if Macquarie’s challenges will affect this fund, but continued performance issues could result in pressure from above.

Poor recent performance across the lineup of Jackson Square, which was spun out of Delaware in 2014, has resulted in an exodus of investors and the liquidation of multiple funds. The firm remains financially viable, but these issues were concerning enough for us to downgrade its Parent rating to Average from Above Average. Jackson Square SMID-Cap Growth JSMVX trailed more than 85% of its mid-growth peers each year from 2021 to 2023. Veteran managers Chris Bonavico and Kenneth Broad have endured other fallow times during their 20-year tenures on this strategy, but this period of struggle has been longer than most. The extreme ups and downs that result from the fund’s concentrated portfolio, which often holds no more than 30 stocks, can be difficult for investors to stomach, as substantial outflows at the fund suggest. The investment team still inspires confidence, meriting a Bronze rating for the investor share class, but further outflows at the firm could eventually lead to changes.

This article first appeared in the March 2024 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.