Management is always a big part of the story for an actively managed mutual fund. Three recent changes in managers spurred us to change a fund's Morningstar Analyst Rating.
At PIMCO Global Multi-Asset (PGAIX), PIMCO made some changes in response to the fund['s disappointing performance. The idea is for the fund to offer wide-ranging asset exposure with a strong emphasis on downside protection. Not only is the fund supposed to move away from riskier asset classes, but by using tail-risk hedging, it is supposed to backstop losses. Given that cautious nature, it's not a surprise the fund lagged given the powerful rally in U.S. equities over the past few years. However, the degree of its underperformance and some ill-timed moves disappointed PIMCO and us at Morningstar.
As a result of these issues, PIMCO CEO and co-CIO Mohamed El-Erian is returning to the lead manager role on the fund. Former lead manager Saumil Parikh has left the fund and will manage some other accounts at PIMCO. The firm further indicated that it is considering making some changes to the asset-allocation strategies at the fund. It's enough to lead us to lower our rating to Neutral from Bronze. While El-Erian's elevation could be an upgrade, we generally don't like to buy funds when the "under construction" signs go up. In addition, the downgrade reflects the continued slump the fund has suffered.
Meantime, we've upgraded Meridian Growth (MERDX) to Bronze from Neutral. The fund and really the whole firm at Meridian had been in limbo since founder and manager Rick Aster's death in early 2012. However, Arrowpoint Partners purchased the firm in September 2013 and named Chad Meade and Brian Schaub as managers. Meade and Schaub put up tremendous results in a seven-year tenure at Janus Triton (JATTX) and plan to run this fund in a similar fashion. They also did a nice job at Janus Venture (JAVTX), and soon-to-be launched Meridian Small Cap Growth will invest along similar lines. We're encouraged that Arrowpoint has a number of promising growth analysts for the managers to lean on.
Shareholders of Meridian Growth have a nice deal at a modest fee level of 0.87%. New shareholders, though, not so much. The fund's prospectus says that the old share class is closed to new investment, and the new ones charge 1.30% for institutions, 1.55% for those going through advisors, and 1.80% for retirement shares (which have yet to launch). Way to kill the buzz, Arrowpoint.
We are also raising the rating on Meridian Contrarian (MVALX) (formerly known as Meridian Value) to Bronze from Neutral. In this case, the managers are not changing, but the new stability and focus brought by Arrowpoint justifies the change. James England, Larry Cordisco (both of whom helped out on Meridian Growth after Aster's death), and Jim O'Connor remain at the fund. Over the years, they've done a nice job keeping risk in check while delivering market-level returns. Unfortunately, it also has a similar group of new and pricier share classes.
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Russel Kinnel does not own shares in any of the securities mentioned above.