(PUB) Morningstar FundInvestor

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2 Upgrades and a Bunch of Downgrades Tracking Morningstar Analyst Ratings | Russel Kinnel

value. He goes where he finds values rather than trying to manage sector weightings to fit an index.

A Fistful of Downgrades Manager changes and/or performance issues have spurred us to lower our ratings on these funds: PIMCO Unconstrained Bond PUBDX , PIMCO EQS Pathfinder PTHDX , Scout International UMBWX , American Century Growth TWCGX , Jensen Quality Growth JENSX , and Century Small Cap Select CSMVX . PIMCO Unconstrained Bond has fallen a notch in our view because it is behaving more like the Barclays U.S. Aggregate Bond Index that it is sup- posed to ignore. That and manager changes led us to take the fund down to Neutral. PIMCO EQS Pathfinder has the unhappy combination of a manager departure and disappointing perform- ance. Chuck Lahr left, and Anne Gudefin is now the sole manager on the fund, though they may hire a replacement for Lahr. The fund’s returns have also dis- appointed as it has lagged not only the market but also comparable funds from Mutual Series, Gudefin’s former firm. The combination spelled Neutral to us. Scout International has been lowered to Neutral because manager James Moffett is going to step down from management of the fund. The coman- agers who will take his place have rather short and unimpressive track records on their own. Jensen Quality Growth remains a good fund—hence our Silver rating. We still like management and the fund’s focus on defensive high-quality stocks. On the other hand, its record has eroded to the point where the entire record under the most seasoned manager is rather modest and we couldn’t ignore that. Like- wise, the record of American Century Growth has steadily declined to where we could no longer make the case for Neutral. Finally, Century Small Cap Select has been lowered to Bronze because of turnover in the analyst ranks and declining performance. œ

We have raised our ratings on two Morningstar 500 Funds.

What Are Morningstar Analyst Ratings?

Our ratings are chosen for long- term success. Analysts assess a fund’s competitive advantages by analyzing people, process, parent, performance, and price. They do rigorous analysis and then submit their ratings to a committee that vets their work for thoroughness and consistency.

Laudus US Large Cap Growth LGILX and its manager Lawrence Kemp took a circuitous route to our Medalist ranks. The fund is run by an arm of Charles Schwab that hires subadvisors to manage its funds. This particular fund was the real star at the firm as Lawrence Kemp and his team at UBS built a stellar record over a long stretch using a focused growth strategy. However, BlackRock lured Kemp away in November 2012 and we lowered the fund’s Morningstar Analyst Rating to Neutral. The team left behind at UBS suffered addi- tional departures as some joined Kemp at BlackRock and others, so it was pretty clearly a Neutral fund at that point. Initially Schwab said it would stick with UBS , but happily it later changed tack and hired BlackRock and Kemp to take the fund’s helm again. We didn’t immediately upgrade the fund because Kemp’s new team was a work in progress. But as the team has grown and had time to settle in, we feel confident enough to raise the fund to Bronze once more. Kemp’s formula of mixing stable growth with more-aggressive names has served the fund quite well. The fact that the fund is available for a modest 0 . 78% expense ratio and still has a relatively small asset base seals the deal. We have raised Diamond Hill Large Cap DHLAX to Gold from Silver. Chuck Bath has built a strong record since 2002 , and over time with additional visits and number-crunching we decided it was worthy of a Gold rating. The fund is running about 200 basis points per year ahead of the Russell 1000 Value Index and nearly 300 basis points ahead of its peer group since inception. Bath’s strategy is really a classic value one executed well. He’s a patient investor looking for businesses trading below his estimate of intrinsic