18
We have raised our ratings on two Morningstar
500
Funds.
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
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
2 Upgrades and a Bunch
of Downgrades
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
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.
