Morningstar issued Analyst Ratings for 637 fund share classes, separately managed accounts, collective investment trusts, and exchange-traded funds in September 2020. Of these, 298 maintained their ratings, 226 were downgraded, 45 were upgraded, 40 were new to coverage, and 28 were placed under review because of material changes, such as manager departures.
Filtering out multiple share classes and vehicles, Morningstar rated 121 unique strategies in September. Of these, seven were new to coverage, while the remaining strategies had at least one investment vehicle previously covered by a Morningstar analyst. Below are some highlights of the upgrades, downgrades, and new to coverage.
Upgrades The MFS Allocation target-risk series' consistent and sound portfolio construction earned it a Process Pillar rating upgrade to Above Average, which resulted in a Morningstar Analyst Rating boost to Silver from Bronze across the cheapest share classes of the Aggressive Growth MIAGX, Growth MGWIX, and Moderate MMAIX series constituents. The managers employ similar tools as their peers in determining each fund's asset-class mix, such as mean-variance portfolio optimization, but distinguish themselves through their admirably steady portfolio allocations. In addition, the team has often moved first compared with rivals when expanding its asset-allocation profile, which hasn't always improved returns but has added diversification and damped volatility, creating a smoother ride for investors.
A stable team dynamic coupled with portfolio manager prowess earned Janus Henderson Developed World Bond HFAAX a People Pillar rating upgrade to High from Above Average. The Analyst Rating for the strategy's cheapest share class moved to Silver from Bronze, while its more expensive share classes are rated Bronze and Neutral. Jenna Barnard and John Pattullo have cohesively steered this strategy since December 2008. During their tenure, the managers have been thoughtful in regard to team expansion and have never lost a team member. They ply a flexible approach and exhibit an aptitude for analyzing the economic cycle and positioning the portfolio accordingly, which has contributed to the strategy's strong long-term performance.
Downgrades Boston Partners Global Long/Short BGLSX fails to translate its group's compelling approach to traditional long-only value investing to a long-short mandate. The strategy's team lacks shorting expertise and doesn't take a holistic approach to portfolio construction, which warranted a downgrade of its People and Process Pillars to Average from Above Average, justifying Analyst Rating downgrades to Neutral for its institutional share class and Negative for its investor share class. Portfolio managers Chris Hart, Josh Jones, and Josh White have collaborated for over a decade, primarily focused on long-only strategies during this time. When managing both a short and long book, the trio views each side in isolation and demonstrates little concern for overlapping bets in regions, sectors, or other risk factors, which can lead to heightened volatility when these factors simultaneously work against the portfolio.
While Pimco StocksPLUS PSTKX has a seasoned manager at the helm, its constrained bond exposure has made it challenging for the strategy to outperform, resulting in a downgrade of its Process rating to Average. The strategy's cheapest share classes earned a Bronze rating, while its more expensive share classes are rated Neutral. Its objective is to track the performance of the S&P 500 using derivatives and to generate additional return from a sleeve dedicated to an ultrashort bond strategy. Lead manager Mohsen Fahmi leverages Pimco's vast bond-investing resources to manage the portfolio's bond allocation, but the need to maintain a high-quality, liquid bond portfolio, while appealing from a risk management standpoint, hampers its ability to overcome its fees and equity derivatives' financing costs. In aggregate, the strategy failed to beat the S&P 500 during Fahmi's tenure from September 2014 through September 2020.
WisdomTree U.S. Quality Dividend Growth's DGRW Process Pillar rating dropped to Average from Above Average, which warranted a reduction of its Analyst Rating to Neutral from Bronze. Two aspects of the strategy's approach contributed to its downgrade: omitting a firm's historical dividend growth record as a portfolio allocation consideration and its dividend-weighting process. The former doesn't factor in a manager's willingness to raise dividends, which is evidence of a shareholder-friendly payout policy and a sign of stability. The latter causes the fund to overweight stocks that are cheap relative to their peers based on dividends and to trim positions in stocks as they become more expensive when it rebalances, which likely reduces the portfolio's exposure to stocks with strengthening fundamentals.
New to Coverage Pax Global Opportunities PXGOX debuted with a Morningstar Analyst Rating of Bronze. Seasoned managers Kirsteen Morrison and David Winborne boast three and two decades of relevant experience, respectively. The managers contribute to, and draw support from, Impax's listed equity team, which shares and centralizes sustainable investing expertise. To manage the strategy, the team employs a conscientious approach that targets companies possessing sustainable competitive advantages that can profit from a transition to a more sustainable economy. While the group's focus is on stock selection, it also sensibly applies top-down views to control risk.