11
Morningstar FundInvestor
December
2013
The Morningstar Analyst Rating offers a fundamental
look at a fund’s prospects to outperform both its peers
and its benchmark over a full market cycle. Analysts
review and revise funds periodically and will change
Analyst Ratings based on material changes such as
a manager departure or general issues such as signs
of portfolio bloat or repeated performance shortcom-
ings. Here are some funds that have recently seen
downgrades in their Analyst Ratings.
Calamos Growth
CVGRX
Recent manager and analyst changes, coupled with
a prolonged performance slump, have created uncer-
tainties at Calamos Growth.
In August
2012
, Calamos hired industry veteran Gary
Black to replace the retiring Nick Calamos as co-
chief investment officer. Black—one of nine coman-
agers at this fund—has driven some big changes
at Calamos. Since he arrived, the firm has hired
15
managers and analysts, increasing its investment
staff by
50%
. Black has also pushed for the histori-
cally quantitative-focused team to employ more
fundamental analysis. The changes could ultimately
prove beneficial, but it’s unclear how the influx of
new team members and the change of strategy will
impact the fund. It could use a boost—its trailing
three-year return through November
2013
lagged
nearly all large-growth peers, based partly on poor
stock-picking, including investments in struggling
gold miners. The fund’s
10
-year return lags three
fourths of peers as well.
Given the changes to the people and process behind
the fund, and its lackluster track record, the fund’s
Analyst Rating was reduced to Neutral from Bronze in
November
2013
.
Matthews Asia Dividend
MAPIX
and
Matthews China Dividend
MCDFX
These international funds each saw Analyst
Rating downgrades after experienced manager
Jesper Madsen announced he would retire.
Madsen had been the lead manager of Matthews
China Dividend for its first three and a half years
before stepping back to comanager in April
2013
and
retiring in October
2013
. Madsen’s comanager of
one year, Yu Zhang, succeeds him at the fund. Zhang
intends to stick with the fund’s focus on buying firms
with a commitment to paying and growing dividends
over time. The process worked during a relatively
short time frame under Madsen: the fund outpaced
China-region peers and the
MSCI
China Index with
much less volatility. But given Zhang’s limited experi-
ence as a lead manager, the fund’s Analyst Rating
was lowered to Neutral from Bronze in August
2013
.
Madsen also retired from Matthews Asia Dividend
in October. Zhang and Robert Horrocks (a comanager
of Silver-rated
Matthews Asian Growth & Income
MACSX
) succeeded Madsen as co-lead managers.
Zhang and Horrocks will work to execute a process
that has proved successful thus far. But the loss of
Madsen’s experience is still a blow that resulted in
the fund’s Analyst Rating dropping to Silver from
Gold in July
2013
.
Third Avenue Small Cap Value
TASCX
The long-term results at this small-value fund just
haven’t measured up to expectations. Since manager
Curtis Jensen took the reins from famed investor
Marty Whitman in mid-
2001
, the fund’s returns through
November
2013
, fell to the category’s bottom decile.
To address particularly poor performance during the
trailing five years, Jensen hired three analysts in
mid-
2013
—adding to a staff that was previously just
Jensen and analyst Charlie Page. While the new
hires may spark a change, it’s too little, too late for
shareholders who have suffered bottom-quartile
performance during the trailing one-, five-, and
10
-year
periods. The fund’s Analyst Rating was downgraded
to Neutral from Bronze in September
2013
.
œ
Contact Flynn Murphy at
Funds We Downgraded
Red Flags
|
Flynn Murphy
What is Red Flags?
Red Flags is designed to alert
you to funds’ hidden risks. Such
risks can take many forms,
including asset bloat, the depar-
ture of a solid manager, or a
focus on an overhyped asset
class. Not every fund featured in
Red Flags is a sell, and in fact,
some are good long-term hold-
ings. But investors should be
prepared for a potentially bum-
pier ride in the near future.
