18
We have lowered Morningstar Analyst Ratings on
three funds, upgraded one, and restarted a rating on
one fund in June.
There are two big names on our downgrade list. We
lowered
T. Rowe Price Equity Income
PRFDX
to Bronze from Gold in response to news that Brian
Rogers will step down in October
2015
. He will be
replaced by John Linehan, who ran
T. Rowe Price
Value
TRVLX
from
2003
to
2009
. From
2009
to
now, he’s served as head of T. Rowe’s U.S.
equity team.
Our ratings are focused on long-term risk-adjusted
results, so we see this as a fund where you’re
mostly getting Linehan if you buy and hold for
10
years. Thus, Linehan’s record is more important,
and a six-year record isn’t nearly as convincing as
Rogers’
28
-year record.
The good news is Linehan did outperform the bench-
mark in his time at T. Rowe Price Value. However, he
mainly added value in sectors that are not the bread
and butter of equity-income funds. It still looks like a
good fund, but there’s less certainty under Linehan,
hence, the Bronze rating.
Meanwhile, a manager change prompted us to
lower
Third Avenue Value
TAVFX
to Neutral from
Bronze. Robert Rewey
III
has replaced Ian Lapey.
Rewey comes to Third Avenue from Cramer Rosen-
thal McGlynn. Unfortunately, he was one of many
comanagers of funds there, so he doesn’t have much
of a track record.
In addition, Third Avenue has suffered a number of
departures recently, as well as poor performance in
most of its funds. We lowered its Parent rating to
Neutral earlier in the year, and Neutral fits this fund’s
prospects as well.
Continuing with the manager departure theme, we
lowered
FPA Perennial
FPPFX
to Silver from Gold
because of Steve Geist’s retirement. We have a little
more faith in the remaining management team
than at Third Avenue. First, Eric Ende remains at the
fund he has comanaged with strong results since
August
1999
.
Second, Greg Herr was named comanager in August
2013
after six years as an analyst at the firm. So,
we feel the fund has two good managers in place.
We also like its process of looking for steady
growth names with little debt whose shares trade
at modest prices. With a small asset base, the
fund has plenty of flexibility to boot.
Upgrade
American Funds has made steady improvement to the
way it runs municipal-bond funds. That led us to
raise
American Funds Tax-Exempt Bond
AFTEX
to
Bronze from Neutral. The firm has built a portfolio
strategy group that sets bands for duration, yield-curve
positioning, and credit positions, which the managers
then implement.This new structure prevents managers
from canceling each other out or inadvertently doub-
ling down on a bet. Now they can focus on issue selec-
tion, and that’s a good thing. Most of its taxable-
bond funds remain Neutral, however.
Update
Finally, we’ve updated our rating on
Franklin Federal
Intermediate-Term Tax Free Income
FKITX
.
The fund’s rating had expired—ratings expire if not
updated within
12
months. Managers John Pomeroy
and James Conn keep a pretty tight lid on credit and
interest-rate risk but still find some decent yields
to keep investors going. Franklin has a deep analyst
team that gives us confidence in this Silver-rated
fund’s prospects.
œ
Manager Changes Spur 3 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.
