Future retirements beat current Morningstar US analyst ratings from 2 successful T. Rowe Price and Vanguard funds

0

Looking for share classes and vehicles through to the underlying strategies, Morningstar released 161 analyst ratings in July. Of these, 14 were new to reporting and the rest had at least one investment vehicle previously covered by a Morningstar analyst.

Morningstar also rated 23 new model portfolios in July.

Below are some of the highlights of the downgrades, upgrades, and funds that are new to coverage.

Downgrades:

T. Rowe Price’s mid-cap decline (TRMCX) Morningstar Analyst Rating on neutral from Gold underscores the interrelationship between the people and process pillar ratings of an investment strategy. Long-time manager David Wallack has almost another year from his recently announced retirement, but the Morningstar Domestic-Stock Fund Manager of the Year 2016 is almost irreplaceable. During his 20+ year tenure, his own analytical insight and talent at finding disappointing companies on the cusp of improvement are intrinsic to the approach to this strategy. Wallack’s appointed successor, Vincent DeAugustino, shares a similar contrarian style and has been analyzing financial stocks for T. Rowe since 2015, but has no public portfolio management. It’s not fair to expect DeAugustino to become the same kind of manager as Wallack, but he has yet to prove himself.

An upcoming retirement also took Vanguard International Growths (VWILX) Analyst rating down, but only by one notch after silver of gold. James Anderson, who has been the manager of the Subadvisor Baillie Gifford Overseas in this fund since 2003, plans to step down in April 2022. He will place his responsibilities in the capable hands of colleagues from the prestigious Scottish company. A solid team from Schroder Investment Management will also remain in action. However, Baillie Gifford now manages about 70% of the strategy’s assets, and Anderson has been the leading proponent of the company’s aggressive approach, the focuses on identifying and investing in a concentrated collection of disruptive growth companies. It’s another case of mixing processes with people. Baillie Gifford’s next generation of managers are skilled and impressive, but they may not implement their unique style as successfully as Anderson and the market environment may not be as welcoming to such an aggressive approach.

Update:

Janus Henderson Contrarians (JSVAX) Manager since 2017, Nick Schommer, still has a lot to do, but the strategy process is gaining followers. Analyst ratings for the fund’s cheaper share classes rose from neutral to bronze as increasing belief in its approach raised its Process Pillar rating from average to above average. It’s a focused style. Schommer is benchmark-independent, owns around 40 stocks and holds almost half of the strategy’s assets in its top 10 holdings. However, he tries to distinguish the disgraced companies he owns based on the reasons for their low valuations – misunderstood business models, undervalued assets, and overlooked growth opportunities. The result so far has been a diverse portfolio that has developed very well over Schommer’s tenure.

New in the cover:

VictoryShares USAA MSCI USA Small Cap Value Momentum ETF (USVM) debuted a Silver Analyst rating for avoiding many of the riskiest small-cap stocks and effectively diversifying risk. The fund tracks the MSCI USA Small Cap Select Value Momentum Blend Index, which selects stocks based on their combined value and momentum characteristics. However, the ETF is really all about value as the index compares the value and momentum factors of stocks to their sectors and it is difficult to isolate momentum that way. The fund also tends to weight less volatile stocks, which tends to emphasize the cheaper, smaller positions in the portfolio. For similar reasons, VictoryShares USAA is MSCI USA Value Momentum ETF (ULVM), which tracks the MSCI USA Select Value Momentum Blend Index, was also the first to receive a silver medal.

The Dimensional Core Wealth Model Portfolios received silver and bronze ratings depending on their allocation to DFA’s solid equity portfolio. The portfolios are characterized by admirable characteristics: stable asset allocation, disciplined investing, broad diversification and low fees. Those with more than 50% equity earn silver, while those with more than 50% bonds earn bronze. DFA’s equity funds outperformed their bond funds, and its bond-heavy portfolios have short durations that are likely to dampen returns.

Leave A Reply

Your email address will not be published.