Morningstar Downgrades Fund Strategies From Goldman, J.P. Morgan, Vanguard

Although those funds “struggled in recent years,” Ruhl was an “integral” member of the group and “helped develop and evolve the quantitative models it used as part of its processes,” Culloton noted. “Other changes rippled through the team as a result of Ruhl’s departure,” he said, noting team members and quant analysts Wonseok Choi and Jonathan Tse became co-managers. While the managers are “familiar with the process that adds a modicum of fundamental verification to its quantitative models, it’s not clear if this change is the end or beginning of larger changes,” according to Culloton.

Last, the Vanguard Balanced Index (VBINX) has been a “solid, proven strategy whose simple, index-only, 60/40 portfolio has defied predictions of its obsolescence for years,” he said. The index’s “sole reliance on U.S. total stock market and bond market indexes, however, limits its diversification options and renders it marginally less attractive than more-wide-ranging rivals,” he said, adding: “So, though you could live a long and happy life and sleep well at night with this as a core portfolio holding, its Process rating and headline Analyst Rating for all its U.S. share classes dropped to Average from Above Average and to Silver from Gold, respectively.”

On a more positive front, a “decade of sound execution earned Bernzott Capital U.S. Small Cap Value’s compact team a People Pillar upgrade to Above Average” and an overall Morningstar Analyst Rating improvement to Bronze for its separately managed account, he said. In 2009, that strategy “broadened its universe beyond dividend-paying stocks to profitable companies with recurring revenues and manageable debt loads whose shares look cheap relative to cash flow,” Culloton wrote.

Meanwhile, the analyst ratings of BlackRock Total Return’s (MAHQX) cheaper share classes moved to Gold from Silver after its first run through Morningstar’s enhanced Analyst Rating methodology.

“Increased confidence in the thoroughness of the strategy’s all-encompassing process and the depth and breadth of its personnel and technological resources underpin the fund’s High People and Process ratings and overall upgrade,” Culloton wrote. BlackRock has also invested significantly in its fixed-income platform since lead manager and global fixed-income CIO Rick Rieder arrived in 2009, he said. It now “comprises hundreds of investors across the world and hard-to-match tools, such as the firm’s industry-standard-setting Aladdin risk management and portfolio management operating system,” Culloton said. Rieder and co-managers Bob Miller and David Rogal “tap these means to implement a subtle approach that incorporates sophisticated top-down research and meticulous bottom-up security selection,” according to Culloton.