Undiscovered Managers Behavioral Val Fd earns an Above Average Process Pillar rating.
The most important driver of the rating is the fund's impressive long-term risk-adjusted performance. This can be seen in its five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. The parent firm's five-year risk-adjusted success ratio of 56% also influences the rating. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median Morningstar Risk-Adjusted Return for the period. Their compelling success ratio suggests that the firm does well for investors and that this fund may benefit from that. Lastly, the process is limited by being an actively managed strategy. Historical data, such as Morningstar's Active/Passive Barometer, finds that actively managed funds have generally underperformed their passive counterparts, especially over longer time horizons.
This strategy, over time, has consistently held more undervalued companies, compared with peers in the Small Value Morningstar Category. But in terms of market capitalization, it is on par with peers. Examining additional factor exposure, this strategy has consistently favored low-quality stocks compared with Morningstar Category peers over the past few years. Lacking this ballast, the fund's prospects could rest on its ability to surpass peers during economic booms. In the latest month, the strategy was also less exposed to the Quality factor compared with Morningstar Category peers. This strategy has also displayed a tendency to hold more companies with high dividend or buyback yields than peers over recent years. Higher-yield stocks can provide dependable income, but also have their risks. Dividend payers may cut payouts, for instance, if their earnings fall. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Moreover, this strategy has been underweighting momentum stocks during these years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. In recent months, the strategy also had less Momentum factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section.
The portfolio is overweight in financial services and utilities relative to the category average by 13.9 and 3.6 percentage points, respectively. The sectors with low exposure compared to category peers are technology and industrials, underweight the average by 7.3 and 3.8 percentage points of assets, respectively. The portfolio is composed of 99 holdings and invests 29.8% of assets in its top 10 holdings, similar to the category average. And in closing, in terms of portfolio turnover, this fund trades less regularly than the typical peer in its category, which may result in a lower cost to investors.