18
Although we spend most of our time updating ratings
of funds we’ve already rated, we continue to add
funds to our ratings universe. Some of these funds
are relatively new, while others have been around for
a long time. We don’t have any rules regarding at
what level a fund must start; we just rate them where
we think they fit. Here are five recent ratings.
Fidelity Real Estate Investment
FRESX
earns a
Morningstar Analyst Rating of Bronze from us. It’s a
nice straightforward play on real estate investment
trusts. Its
55
-stock portfolio makes it one of the more
diffuse funds in the category as there just aren’t
that many
REIT
s out there. So, you can find some
bolder, more-concentrated funds than this one.
However, Steve Buller has done a fine job executing
this modest strategy. The fund has beaten most of
its peers and is even a hair ahead of
Vanguard REIT
Index
’s
VGSIX
retail shares since their
1996
incep-
tion (which slightly predates Buller’s
15
-year tenure.)
The fund has outperformed the category average
by a range of
42
–
277
basis points in each calendar
year since
2007
, when it last underperformed.
DFA International Small Company
DFISX
is rated
Silver because it is right in
DFA
’s wheelhouse. This
fund delivers excellent small-cap passive exposure by
tracking a savvy approach to trading less-liquid
names. This enables the fund to perform better than
most small-cap benchmarks both in the United
States and abroad, even though they aren’t taking a
view on individual stocks. The fund charges
0
.
56%
,
making it one of the cheapest funds in the category.
RS Value
RSVAX
earns a Neutral rating because it is
in the process of overhauling its strategy. Its portfo-
lio is the result of industry specialists selecting stocks
in their area, and
RS
has realized it needs overall
portfolio oversight to avoid unintended bets if, for
example, everyone picks economically sensitive
stocks or raises cash. The firm also implemented risk
controls to further get a grip on things. You’d think
these gaps would have been apparent from the begin-
ning. Anyway, if these changes make the fund less
erratic, that could be a good thing.
Vanguard FTSE All-World ex-US Small-Cap
VFSVX
is rated Silver, though it’s a newcomer with
just three years under its belt. Your choice for for-
eign small-cap passive funds really comes down to
this one versus the aforementioned
DFA
fund. This
fund charges
0
.
45%
, which is
11
basis points less
than the
DFA
fund. Vanguard has chosen a good low-
turnover index to follow, and we see big things
here. However, my preference leans slightly toward
DFA
because it has beaten Vanguard’s index over
the long haul.
Annoyingly, this fund doesn’t have a cheaper Admiral
share class yet, but it does have an exchange-traded
fund (
VSS
) that charges
0
.
25%
.
Vanguard Strategic Equity
VSEQX
merits a Neutral
rating because our enthusiasm for Vanguard’s quan-
titative group is rather tepid. The fund uses quantita-
tive models that emphasize high profitability and
low valuations. Like many quant funds, it lagged in
2008
and
2009
when macro events dominated the
kind of past individual stock data that this fund uses.
However, it has rebounded nicely in the past two
and a half years. However, its longer-term record is
not impressive, and Vanguard’s quant group has
been closer to adequate than stellar at other funds.
œ
New Ratings for Funds Young and Old
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.
