(PUB) Morningstar FundInvestor

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Manager Changes Spur 3 Downgrades Tracking Morningstar Analyst Ratings | Russel Kinnel

Continuing with the manager departure theme, we lowered FPA Perennial FPPFX to Silver from Gold because of Steve Geist’s retirement. We have a little more faith in the remaining management team than at Third Avenue. First, Eric Ende remains at the fund he has comanaged with strong results since August 1999 . Second, Greg Herr was named comanager in August 2013 after six years as an analyst at the firm. So, we feel the fund has two good managers in place. We also like its process of looking for steady growth names with little debt whose shares trade at modest prices. With a small asset base, the fund has plenty of flexibility to boot. Upgrade American Funds has made steady improvement to the way it runs municipal-bond funds. That led us to raise American Funds Tax-Exempt Bond AFTEX to Bronze from Neutral. The firm has built a portfolio strategy group that sets bands for duration, yield-curve positioning, and credit positions, which the managers then implement.This new structure prevents managers from canceling each other out or inadvertently doub- ling down on a bet. Now they can focus on issue selec- tion, and that’s a good thing. Most of its taxable- bond funds remain Neutral, however. Intermediate-Term Tax Free Income FKITX . The fund’s rating had expired—ratings expire if not updated within 12 months. Managers John Pomeroy and James Conn keep a pretty tight lid on credit and interest-rate risk but still find some decent yields to keep investors going. Franklin has a deep analyst team that gives us confidence in this Silver-rated fund’s prospects. œ Update Finally, we’ve updated our rating on Franklin Federal

We have lowered Morningstar Analyst Ratings on three funds, upgraded one, and restarted a rating on one fund in June. There are two big names on our downgrade list. We lowered T. Rowe Price Equity Income PRFDX to Bronze from Gold in response to news that Brian Rogers will step down in October 2015 . He will be replaced by John Linehan, who ran T. Rowe Price Value TRVLX from 2003 to 2009 . From 2009 to now, he’s served as head of T. Rowe’s U.S. equity team. Our ratings are focused on long-term risk-adjusted results, so we see this as a fund where you’re mostly getting Linehan if you buy and hold for 10 years. Thus, Linehan’s record is more important, and a six-year record isn’t nearly as convincing as Rogers’ 28 -year record. The good news is Linehan did outperform the bench- mark in his time at T. Rowe Price Value. However, he mainly added value in sectors that are not the bread and butter of equity-income funds. It still looks like a good fund, but there’s less certainty under Linehan, hence, the Bronze rating. Meanwhile, a manager change prompted us to lower Third Avenue Value TAVFX to Neutral from Bronze. Robert Rewey III has replaced Ian Lapey. Rewey comes to Third Avenue from Cramer Rosen- thal McGlynn. Unfortunately, he was one of many comanagers of funds there, so he doesn’t have much of a track record. In addition, Third Avenue has suffered a number of departures recently, as well as poor performance in most of its funds. We lowered its Parent rating to Neutral earlier in the year, and Neutral fits this fund’s prospects as well.

What Are Morningstar Analyst Ratings?

Our ratings are chosen for long- term success. Analysts assess a fund’s competitive advantages by analyzing people, process, parent, performance, and price. They do rigorous analysis and then submit their ratings to a committee that vets their work for thoroughness and consistency.