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About the Editor
Russel Kinnel is director of mutual fund research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors. He also writes the Fund Spy column for Morningstar.com, the company's investment Web site.

Since joining the company in 1994, Kinnel has covered the Fidelity, Janus, T. Rowe Price, and Vanguard mutual fund families. He helped develop the new Morningstar Rating for funds and the new Morningstar Style Box methodology. He also is co-author of the company's first book, The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success, which was published in January 2003.

 
 
Nov 28, 2014
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About Russel Russ' Photo
Russel Kinnel,
Director of Fund Research and Editor, Morningstar FundInvestor
Russel Kinnel is director of mutual fund research for Morningstar, Inc. and editor of Morningstar FundInvestor, a monthly print newsletter for individual investors.
Featured Posts
Royce and Columbia Funds Get New Ratings

Happy Thanksgiving. I hope you have a great holiday.

There are a couple of Morningstar Analyst Rating changes I want to highlight for you.

We have lowered two funds to Neutral. For one, the reason is a straightforward manager change. The other lowered fund has a more subtle story of a few negative developments coming together to make a fund less attractive. The first is Royce Low Priced Stock RLPHX, and the second is Columbia Acorn ACRNX.

Here are our takes:

Royce Low Priced Stock RLPHX
Analyst Karin Anderson

The Morningstar Analyst Rating for Royce Low Priced Stock has been downgraded to Neutral from Silver because of a manager departure.

As of Nov. 10, 2014, comanager Whitney George stepped down from this fund, Royce Premier RYPRX, and Royce Global Value RIVFX. He will join Toronto-based Sprott Asset Management in 2015. Jim Stoeffel, who became assistant manager in 2013, has taken the lead. Stoeffel joined the firm in 2009, and his previous experience includes seven years at Cramer Rosenthal McGlynn, where he comanaged CRM Small Cap Value CRISX with solid results. Three new assistant managers have also been named to this fund. Bill Hench, Jim Harvey, and Carl Brown are involved with other portfolios as well and have been with the firm for 12, 16, and five years, respectively.

Disappointing losses in 2011's downturn paired with poor performance in 2012's and 2013's rallies torpedoed this small-growth fund's long-term returns. In 2011, the fund's hefty stake in non-U.S. stocks (roughly 30%) and midteens stake in metals and mining firms was partly responsible for painful losses that year. The metals and mining stake has generally weighed on relative results ever since. George had made some changes in response, including a decision to cap that exposure at 10% and whittle the portfolio down to around 90 names (it held nearly twice that amount prior to 2012). Like George, Stoeffel will use the trademark Royce investment approach, which looks for small-cap firms with sturdy balance sheets and high returns on capital and buys their stocks when they trade at 30%-50% discounts to analysts' assessment of the businesses' worth. Still, this portfolio could see significant changes because of George's departure, including a reduction in its materials and non-U.S. stock exposure.

Although this fund has struggled mightily, it's rarely a good thing to lose a manager of George's experience level. He joined the firm in 1991, has been managing portfolios for more than a decade, and was firm founder Chuck Royce's heir apparent. Given the departure and that it will take time to see how this new team jells, this fund receives a Morningstar Analyst Rating of Neutral.

Columbia Acorn ACRNX
Analyst Gretchen Rupp

Subtle changes decrease our confidence in Columbia Acorn's ability to outperform.

Because of recent personnel and portfolio changes, we're downgrading the Morningstar Analyst Rating for Columbia Acorn to Neutral from Bronze. The team is in transition as leadership roles shuffle. Chuck McQuaid, a 35-year veteran of the fund, left the CIO position in April 2014. At the same time, Rob Mohn and Zach Egan took on new CIO responsibilities for the domestic- and international-stock teams, respectively. More changes include a newly appointed co-portfolio manager here as well as on Columbia Acorn Select and Columbia Acorn USA and a newly created Risk/Performance role held by senior team member Harold Lichtenstein. All this comes on the heels of unusually high staff turnover in 2013, when three analysts departed. Columbia Wanger has made changes, but the positive impact has yet to be seen.

The past may not be prologue for the fund. Its composition has changed a bit over time, so its historical risk/reward profile is not a guaranteed guide to the future. Its long-term performance measures are strong because the fund consistently lost less than its peers in market downturns, especially during the 2000-02 technology bubble when Columbia Acorn's returns beat the mid-cap growth Morningstar Category by 24%. The fund also stashed as much as 15% of its assets in international stocks and had substantial cash reserves. Both stakes helped buoy the fund's 10- and 15-year risk/reward profile. But neither remains today. And the fund has lost nearly as much as peers in the most recent downturns, including the 2008 bear market and the 2011 credit crisis.

The fund has had another challenge to manage lately. Redemptions have been significant over the past year, and the fund has shrunk to $17.6 billion in assets from $20.9 billion. Columbia Acorn is the second-largest fund in the mid-cap growth category, and it holds more small-cap stocks than its typical peer, so a reduction in girth could make it more nimble. But such sizable outflows can be a challenge to manage and a distraction from core investment work, even for a seasoned team.







 

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