In its latest update of analyst ratings for mutual funds and ETFs, Morningstar upgraded five, downgraded seven, put three funds under review and affirmed the ratings on 57, including two target date series. It also initiated ratings on 14 funds, only one of which merited Gold: Vanguard’s Short-Term Inflation Protected Securities ETF.
The Morningstar analyst ratings are meant to gauge the ability of a particular fund to outperform its peer group and/or benchmark, on a risk-adjusted basis over the long term. It’s a forward-looking rating, unlike the Morningstar star ratings, which are based on a fund’s past risk and load-adjusted returns versus its peers.
Among the latest upgrades were three funds that moved up from Bronze to Silver: AQR Style Premia Alternative, PIMCO Foreign Bond (U.S. dollar-hedged), and PIMCO Global Bond (also U.S. dollar hedged). Both PIMCO funds are managed by the team of Andrew Balls, Sachin Gupta and Lorenzo Pagani.
Two other funds move up from Neutral to Bronze: Dreyfus/Standish Global Fixed Income and Vanguard Energy.
Four of the funds downgraded moved from Bronze to Neutral: Fidelity OTC, Hennessy Focus, John Hancock Balanced and Wells Fargo Growth.
Two were downgraded from Silver to Bronze: Berwyn and Invesco Small Cap Growth, and Diamond Hill Small Cap was downgraded from Gold to Silver.
All three funds put under review are Pioneer funds, including two currently rated Neutral: Pioneer and Pioneer Equity Income, as well as Pioneer Strategic Income, currently rated Bronze.
Of the 14 funds receiving analyst ratings for the first time, six of the eight with the three top ratings — Silver, Gold and Bronze — are Treasury inflation-protected funds and ETFs. In addition to the Gold-rated Vanguard TIPS ETF are three Silver-rated TIPS funds: iShares TIPS Bond, Schwab US TIPS ETF and SPDR Bloomberg Barclays TIPS ETF; and two Bronze-rated TIPS funds: FlexShares iBoxx 3Yr Target Duration TIPS ETF and PIMCO 1-5 Year U.S. TIPS ETF
Causeway Global Value was rated Silver and PowerShares FTSE RAFI Developed Markets ex-US ETF, Bronze.
The other new ratings include 6 Neutral funds:
- American Century Intermediate Term Tax-Free Bond
- First Trust Large Cap Value AlphaDEX ETF
- Gabelli ABC
- Goldman Sachs International Small Cap Insights
- Invesco Global Core Equity
- PowerShares Fundamental High Yield Corporate Bond ETF
The analyst ratings are based on five pillars: process, the fund’s strategy and management’s competitive advantage to execute the strategy well and consistently over time; performance, using the fund’s process and its risk-adjusted returns over relevant time periods; its manager’s talent, tenure, and resources; the parent company’s priorities, stewardship and salesmanship; and the share price compared with similar funds sold through similar channels.
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