Undiscovered Managers Behavioral Val Fd earns an Above Average Process Pillar rating.
The leading factor in the rating is the fund's strong 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 57% also influences the rating. The measure indicates the percentage of a firm's funds that survived and outperformed 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 targets deeper value plays than its peers’ average in the Small Value Morningstar Category. But in terms of market capitalization, it is on par with peers. Looking at 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. Stocks with high yields can be more stable, mature companies, but at times extreme market pressure or fundamental deterioration may prompt them to cut their dividends, which tends to hurt stock performance. Compared with category peers, the strategy also had more exposure to the Yield factor in the most recent month. Additionally, the strategy has demonstrated a contrarian approach with relatively low exposure to momentum stocks during these years. Momentum tends to be a powerful force in asset markets, as stocks that have done well recently usually continue to do so in the short term. As top performers change, this can sometimes be hard to capture without higher trading costs. 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 14.7 and 3.4 percentage points, respectively. The sectors with low exposure compared to category peers are technology and industrials, underweight the average by 7.0 and 3.6 percentage points of assets, respectively. The portfolio is positioned across 96 holdings and is quite concentrated. More concretely, 30.7% of the fund’s assets are housed within the top 10 holdings, as opposed to the category’s 28.1% average. And finally, in terms of portfolio turnover, looking at year-over-year movements, 39% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.
