Why We Upgraded This Vanguard Fund

Vanguard’s in-house quantitative funds have had their ups and downs over the years and so have their Morningstar Medalist Ratings. It’s been up for one of those strategies lately, though.

We recently raised Vanguard Strategic Equity’s VSEQX People Pillar rating to Above Average from Average because, in the words of senior analyst Todd Trubey, “a new leader has it on a promising path.” The pillar upgrade pushed the overall Medalist Rating of its Investor share class to Silver from Bronze.

Cesar Orosco has patiently learned the processes and culture of Vanguard’s quantitative equity group since joining it in 2021 and has opted to make incremental improvements rather than revolutionary changes. The portfolio still systematically leans toward profitable small and medium-size companies with modest share prices, but it has spread itself over more names since Orosco took charge. Results, so far, have been impressive. It’s beaten the Russell Mid Cap Index and the mid-cap blend Morningstar Category by wide margins on Orosco’s watch. The fund, like all strategies, will have its fallow periods, but it should give investors a decent shot at competitive absolute and risk-adjusted results over the long term.

Here are some other Morningstar Medalist Ratings highlights from December 2023:

Value Redux

Nearly eight years into his second stint as manager of Fidelity Value Strategies FSLSX, Matt Friedman has put the lessons he’s learned over nearly 25 years and several assignments at the family to good use. Since taking this fund over again in 2016, he’s stuck with what worked the first time around from 2006 to 2010 and refined what didn’t, writes Morningstar analyst Eric Schultz. He still looks for cheap stocks with durable cash flows and will not shy away from indebted companies if they are paying down their loans. Friedman, however, has reduced holdings and turnover to focus on the best ideas from his other, more diversified charge, Fidelity Value FDVLX, and let them run when they start working. He also works more closely with Fidelity’s quantitative team to monitor and ring-fence risk. The results have been salutary in recent years, earning the strategy a Process Pillar upgrade to Above Average, which boosted its Medalist Rating to Silver from Bronze.

Wide-Ranging Risk

Franklin Templeton Western Asset Macro Opportunities LAAAX still has experienced managers who complement each other well, but it has been more volatile than expected or intended, so its Process Pillar dropped to Average from Above Average and the Medalist Rating of its cheapest share classes to Neutral from Bronze. This is one of the more swashbuckling options in the nontraditional bond Morningstar Category, and managers Kenneth Leech and Prashant Chandran are sharp, seasoned, and accomplished. The strategy goes long or short across various fixed-income sectors, makes tactical shifts, and freely employs derivatives but has often exceeded its own volatility guardrails in recent years.

The Ones Replace the Twos

An abrupt management team change dropped Columbia Small Cap Value Fund II’s NSVAX People and Process Pillar ratings to Average from Above Average and its Medalist Rating to Neutral. New managers Jeremy Javidi and Bryan Lassiter of sibling fund Columbia Small Cap Value I CSMIX have covered the same territory as their predecessors, Christian Stadlinger and Jarl Ginsberg, but in a different way. It’s not clear how different Columbia Small Cap Value II will become under the new duo.

Out of Its Sibling’s Shadow

Jensen Quality Value JNVIX received an Average Process Pillar, Above Average People Pillar, and Bronze overall Medalist Rating for its first 100% analyst-driven rating in December. The strategy shares a similar team and starts with the same opportunity set as its elder sibling, Silver-rated Jensen Quality Growth JENIX, but looks for smaller stocks trading at bigger discounts than the large-cap growth fund. The firm also has tweaked this fund’s process since its 2010 launch. It still has some proving to do, but it also has promise as a moderate mid-cap stock holding.