Each year, Morningstar Manager Research analysts introduce Morningstar Analyst Ratings for several equity strategies which weren't previously covered. Our analysts assess the merit of a fund's investment process, the strength and stability of its team, and other factors. Some strategies that are new to coverage are named Morningstar Medalists, defined as Bronze, Silver, or Gold ratings. Below is an assortment of previously unrated equity strategies that earned medals in 2019.
Fidelity Advisor International Small Cap Opportunities FOPIX earned a Silver rating thanks to its thorough process, impressive team, and consistent success. Manager Jed Weiss has run the strategy since 2008 and focuses on competitive advantages and structural tailwinds as he builds his 130-150-stock portfolio, also relying on Fidelity's renowned global analyst team. Weiss' process stands out for its methodical and unusual assessment of portfolio risk, as he considers industry-standard definitions of sector and regional classifications to be myopic. He disaggregates each company into its lines of business and sources of revenue and incorporates those risks into what he thinks is a more comprehensive view.
During Weiss' tenure through November 2019, the strategy returned 13.2% annualized, topping the MSCI EAFE Small Cap Index's 12.0% and the foreign small/mid-growth Morningstar Category's 11.8%. Over that same period, the strategy has provided relatively strong capital protection in drawdowns, enduring only 82% of the benchmark's losses. Its performance in 2018's difficult environment fit this pattern: Although the fund lost 14.1%, it beat the benchmark by nearly 4 percentage points and outpaced almost 80% of its peers.
Principal Blue Chip PBLAX earned a Silver rating courtesy of its capable team and tested strategy. Lead manager Bill Nolin has honed the approach since taking over the mid-cap version of this large-cap strategy in 1999, launching the exceptional Principal MidCap PEMGX in 2001. Tom Rozycki has worked with Nolin in various capacities since 2001, comanaging this strategy since its 2012 inception. The team built its process around the philosophy that owner-operator companies, where managers are also major shareholders, take a long-term perspective that results in more-prudent operational and capital-allocation decisions.
This approach has led to strong results thus far. The strategy tends to hold up relatively well in drawdowns, giving it its long-term edge. It captured 96% of its Russell 1000 Growth Index benchmark's rallies from its inception through November 2019 while experiencing only 90% of its drawdowns. For example, in the fourth quarter of 2018, the fund's Institutional share class' 41.6% loss, though painful for shareholders, was much less than the 48.5% loss of the large-growth category and 49.7% loss of the benchmark.
T. Rowe Price QM U.S. Small & Mid-Cap Core Equity TQSIX received a Silver rating for its experienced team and proven quantitative approach. Comanagers Sudhir Nanda and Prashant Jeyaganesh have led the strategy since June 2017; Nanda also heads T. Rowe Price's equity quantitative equity team. The model gives a heavy weight to valuation, which accounts for 40%-45% of a stock's ranking, while also considering earnings quality, profitability, and price momentum.
The relatively new comanagers are off to a solid start. From their June 2017 start through November 2019, the Institutional share class' 10.2% annualized gain has topped the mid-blend category's 7.8% and benchmark Russell 2500 Index's 10.1%. Furthermore, Nanda has a strong record of success, as he's delivered superior absolute performance as head of similar strategy, T. Rowe Price QM U.S. Small-Cap Growth Equity PRDSX, since October 2006 while taking less risk.
Morgan Stanley Global Opportunity MGGIX earned a Bronze rating. Manager Kristian Heugh launched this strategy in 2008 after being given the freedom to develop his own team and process. His growth-oriented style uses fundamental analysis to uncover broad investment themes and assess competitive advantages across global markets. From there, Heugh uses an unconventional valuation model that deemphasizes traditional price multiples. Rather, he forecasts future free cash flows to determine a firm's intrinsic value and invests if the models deem it less than the firm's market cap. This bottom-up approach has created a concentrated, benchmark-agnostic portfolio that Heugh weights based on his confidence in a firm's ability to capitalize on a specific thesis.
Since its May 31, 2008, inception, the strategy has provided exceptional returns. Through November 2019, its 13.2% annualized return far outclassed the world large stock category's 5.1% and the benchmark MSCI All Country World Index's 5.2%. While this strategy's volatility has been higher than that of its peers and benchmark, its risk-adjusted returns have still been far superior, and investors have been compensated impressively for the bumpy ride.
Brandes Emerging Markets Value BEMIX earned a Silver rating in part because of its veteran team and disciplined deep-value approach. This strategy is led by a four-person emerging-markets investment committee; its members average 22 years of experience, mitigating key-person risk. The managers have demonstrated a willingness to push back against market trends in recent years if they don't see value, such as their perennial underweighting to China. The 60-85 stock portfolio is built from the bottom up, and the team's discipline has kept the portfolio's price multiples well below those of its MSCI Emerging Markets Index benchmark.
While this strategy's deep-value emphasis has been out of favor most years since its 2011 inception, its track record through November 2019 is better than one would expect in such an environment. Its 1.1% annualized return only slightly trailed the diversified emerging-markets category's 1.2% and the MSCI Emerging Markets Index's 1.6%; risk-adjusted measures also slightly lagged.