18
It must be downgrade season. We have raised our
rating on one fund and lowered our rating on five.
We took
Arbitrage Fund
ARBFX
down a peg to
Bronze from Silver because of strategy and manage-
ment changes. The fund had a growth spurt to $
3
billion from $
500
million in just three years, and it
gave the fund a different profile. Management has
moved toward large caps in order to find more
liquidity. As a result, it has gone to just
13%
small-
cap exposure from
40%
. As small caps were big
contributors to the fund’s success, that’s a worry.
It has also gone overseas to find more deals to satisfy
that asset growth; the fund is now about half
foreign. Thus, it is in a spot where there is less of
a track record. So far the record on that move is
disappointing as two of its three misfires on mergers
came from overseas.
We also lowered
Clipper
CFIMX
to Silver from Gold
as the focused version of Chris Davis and Ken Fein-
berg’s strategy has added more to risk than rewards.
Although the fund has respectable one- and three-
year records, its five-year record is weak and the
combination of a focused portfolio and financials bias
gives us pause. On the positive side, Davis and Fein-
berg do have a strong record of nearly
20
years at
Davis New York, and we expect the picture will
continue to brighten, though it will be a bumpy ride.
Our view changed more dramatically at
Fidelity
Floating Rate High Income
FFRHX
, where manager
Christine McConnell’s retirement is a real blow.
Thus we lowered the fund to Bronze from Gold
because of concerns about changes in strategy and
execution under new manager Eric Mollenhauer.
While Mollenhauer has two decades of experience,
we only have a two-year public record from
Fidelity
Series Floating Rate High Income
FFHCX
. On the
plus side, he’s supported by a strong team of analysts.
We downgraded
Janus Global Research
JAWWX
to Bronze from Silver. The record at other Janus funds,
including
Janus Research
JAMRX
, shows that
the quality of Janus’ global research isn’t all that
strong, damping our enthusiasm for this analyst-
driven fund. In addition, the fund just surged in assets
after absorbing the $
2
.
1
billion Janus Worldwide.
That’s quite a boost for a fund that had a mere $
300
million in assets.
We took
Aston/Montag & Caldwell Growth
MCGFX
down one notch to Silver from Gold to reflect
a downturn in performance and the growing likeli-
hood that Ron Canakaris will hand over the reins.
Canakaris is now in his fifth decade at the firm. We
still like the fund a lot, but Canakaris is
68
and we
don’t have much of a track record for his likely succes-
sors. They run a mid-cap fund with a small asset
base that has middling results. On the plus side, the
fund’s returns since its
1994
inception are still
better than the S
&
P
500
and Russell
1000
Growth
indexes and its process has not changed.
Gateway
GATEX
retains its Silver rating in light of
manager Patrick Rodgers’ departure. He leaves
behind other experienced managers. In addition, the
fund’s strategy is a transparent and repeatable
process that is less dependent upon one manager.
We raised our rating on
GoodHaven
GOODX
to
Bronze from Neutral. We have grown more comfort-
able as the fund’s portfolios have borne out what we
heard from managers Keith Trauner and Larry
Pitkowsky. They aim to find unappreciated companies
with value to unlock, and they’ll bet quite a lot on
their favorite stocks.
So far the fund is like their former employer Fairholme
in terms of concentration, but it’s shy of financials
and working a little lower in market cap. Its average
market cap is $
9
billion versus $
21
billion for
Fairholme. And as I noted last month, the pair has
more than $
4
million invested in the fund.
œ
A Bunch of Downgrades and
One Upgrade
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.
