Fund Manager: Plenty of Reasons to be Cautious Now
October 14, 2012
By Mark Jewell
The views expressed in the article are those of the author and participants as of 10/14/12 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security. Information provided with respect to the Fund’s Portfolio Holdings, Sector Weightings, Number of Holdings, Performance and Expense Ratios are as of the dates described in the article and are subject to change at any time.
Investments in commodities such as gold may be affected by overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes and international economic and political developments. Commodities are assets that have tangible properties, such as oil, metals, and agricultural products. These instruments may subject the Fund to greater volatility than investments in traditional securities.
As of 9/30/12, the Appleseed Fund held the following positions in its portfolio: Shimano 3.0%, Tesco PLC 7.9%
Morningstar Analyst Rating for Mutual Funds
Unlike the backward-looking Morningstar Rating™ (often referred to as the “star rating”), which assigns 1 to 5 stars based on a fund’s past risk- and load-adjusted returns versus category peers, the Analyst Rating is the summary expression of Morningstar’s forward-looking analysis of a fund. Morningstar analysts assign the ratings on a five-tier scale with three positive ratings of Gold, Silver, and Bronze, a Neutral rating, and a Negative rating.
The Analyst Rating is based on the analyst’s conviction in the fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over the long term. If a fund receives a positive rating of Gold, Silver, or Bronze, it means Morningstar analysts think highly of the fund and expect it to outperform over a full market cycle of at least five years.
The Analyst Rating is not a market call, and it is not meant to replace investors’ due-diligence process. It cannot assess whether a fund is the right fit for a particular portfolio and risk tolerance. It is intended to supplement investors’ and advisors’ own work on funds and, along with written analysis, provide forward-looking perspective into a fund’s abilities. It picks up where commonly watched measures of the past leave off.
Research Methodology: The Five Pillars
Morningstar evaluates funds based on five key pillars–Process, Performance, People, Parent, and Price–which its analysts believe lead to funds that are more likely to outperform over the long term on a risk-adjusted basis. Analysts assign a rating of Positive, Neutral, or Negative to each pillar.
1. Process: What is the fund’s strategy and does management have a competitive advantage enabling it to execute the process well and consistently over time?
2. Performance: Is the fund’s performance pattern logical given its process? Has the fund earned its keep with strong risk-adjusted returns over relevant time periods?
3. People: What is Morningstar’s assessment of the manager’s talent, tenure, and resources?
4. Parent: What priorities prevail at the firm? Stewardship or salesmanship?
5. Price: Is the fund a good value proposition compared with similar funds sold through similar channels?
Analyst Rating Scale
Gold: Best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts’ highest level of conviction.
Silver: Fund with advantages that outweigh the disadvantages across the five pillars and with sufficient level of analyst conviction to warrant a positive rating.
Bronze: Fund with notable advantages across several, but perhaps not all, of the five pillars—strengths that give the analysts a high level of conviction.
Neutral: Fund that isn’t likely to deliver standout returns but also isn’t likely to significantly underperform, according to the analysts.
Negative: Fund that has at least one flaw likely to significantly hamper future performance and that is considered by analysts an inferior offering to its peers.