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Morningstar FundInvestor
July
2015
When a fund’s Morningstar Rating (which reflects its
historical risk-adjusted returns) declines significantly,
it’s not always cause for concern. True, sometimes
this signals weak execution by management, but it
can also simply reflect that a fund’s strategy isn’t in
sync with the current market environment. Let’s take
a closer look at several funds whose star ratings
have dropped by
2
stars during the past three years.
Columbia Acorn
ACRNX
This fund’s rating dropped from
4
stars in
2012
to a
recent
2
. The normally risk-averse fund lost nearly
as much as its typical mid-growth peer in
2008
and
2011
and lagged badly in
2014
(a choppy environ-
ment in which the fund typically has shone in the
past). Key personnel changes have taken place in
the wake of weak performance: Longtime skipper
Charles McQuaid stepped off the fund (and resigned
as
CIO
) in early
2014
, and comanager Rob Mohn
announced he’ll retire in late
2015
. Meanwhile, the
fund’s Morningstar Analyst Rating was downgraded
to
ˇ
from Bronze in
2014
because of the
manager departures.
Royce Low-Priced Stock
RYLPX
,
Royce
Premier
RYPRX
,
Royce Small-Cap Value
RYVFX
Dreadful performance pulled Royce Low-Priced
Stock’s rating down to
1
star from
3
stars; it finished
in the worst
6%
of its Morningstar Category each
calendar year from
2011
–
14
. (The fund moved between
the small-blend and small-growth categories during
this span.) Meanwhile, Whitney George, the lead
manager for nearly
14
years (and co-
CIO
of Royce), left
the firm in November
2014
. The fund’s Analyst Rating
was downgraded to
ˇ
from Silver when he left.
Royce Premier, which George had comanaged since
2002
, also suffered through a tough stretch from
2012
–
14
and had its Analyst Rating downgraded from
Gold when he left. However, firm founder Chuck
Royce remains at the helm of this fund, and it
retains its highly disciplined approach, so it still
merits a
•
.
Royce Small-Cap Value, another George charge,
underwent similar struggles and saw its star
rating decline to
2
stars from
4
. (Morningstar doesn’t
assign an Analyst Rating to this fund.)
Permanent Portfolio
PRPFX
This fund’s name reflects its unchanging nature:
It maintains a
20%
allocation to gold,
5%
to silver,
another
10%
to the Swiss franc,
15%
to natural-
resources and real estate equities,
35%
to U.S. bonds,
and
15%
to aggressive growth stocks. Thus, the
fund’s performance depends on how these various
sleeves perform. Its precious-metals stake has
been a big drag on returns relative to the conserva-
tive-allocation category in recent years; the fund
lagged more than three fourths of its peers in
2012
,
2013
, and
2014
(as well as in
2015
through June
30
),
and its star rating dropped to
3
from
5
. The fund
has consistently earned a Morningstar Analyst
Rating of
ˇ
because of a thin staff and its
inflexible process.
Calamos Growth & Income
CVTRX
This fund mixes growth stocks and convertible bonds.
While the latter is a specialty of the firm, its recent
record of investing in those securities is mixed (as
evidenced by the middling performance of
ˇ
-
rated
Calamos Convertible
CCVIX
). Meanwhile, as
the struggles of
ˇ
-rated large-growth fund
Calamos Growth
CVGRX
indicate, management has
chosen poorly among equities as well. Thus, this
moderate-allocation fund’s star rating has declined to
2
stars from
4
since
2012
. Meanwhile, a raft of
personnel changes since co-
CIO
Nick Calamos left the
firm in
2012
and industry veteran Gary Black joined
and took on that role—a total of eight portfolio
managers (counting Nick Calamos) have left the fund,
though five remain at the firm—contributed to
the downgrade of the fund’s Analyst Rating to
ˇ
in
2013
.
K
Contact Greg Carlson at
greg.carlson@morningstar.comFalling Stars?
Red Flags
|
Greg Carlson
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
departure 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
holdings. But investors should
be prepared for a potentially
bumpier ride in the near future.