Morningstar downgrades several Vanguard funds

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Morningstar downgrades several Vanguard funds

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"The 10 Biggest Funds to Get Downgrades in 2018"
Vanguard Short-Term Investment-Grade (VFSTX) and Vanguard Intermediate-Term Investment-Grade (VFICX)
Downgraded to Bronze from Silver
Do Vanguard's bond managers matter? You bet. Low fees help, but management is still important. Greg Nassour was these funds' lead manager and co-head of Vanguard's U.S. corporate-bond desk. He left in April. Vanguard appeared to be surprised by the move. It named two comanagers while it looks for a permanent
Vanguard FTSE All-World ex-US Small-Cap Index (VFSVX)
Downgraded to Bronze from Silver
We lowered this strategy because it has big weightings in materials and energy--two of the most volatile sectors. That makes it more volatile than most of its peers.
A version of this article was originally published in the October 2018 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.

https://www.morningstar.com/articles/89 ... -2018.html
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ResearchMed
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Re: Morningstar downgrades several Vanguard funds

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Doc wrote: Tue Nov 13, 2018 4:31 pm "The 10 Biggest Funds to Get Downgrades in 2018"
Vanguard Short-Term Investment-Grade (VFSTX) and Vanguard Intermediate-Term Investment-Grade (VFICX)
Downgraded to Bronze from Silver
Do Vanguard's bond managers matter? You bet. Low fees help, but management is still important. Greg Nassour was these funds' lead manager and co-head of Vanguard's U.S. corporate-bond desk. He left in April. Vanguard appeared to be surprised by the move. It named two comanagers while it looks for a permanent
Vanguard FTSE All-World ex-US Small-Cap Index (VFSVX)
Downgraded to Bronze from Silver
We lowered this strategy because it has big weightings in materials and energy--two of the most volatile sectors. That makes it more volatile than most of its peers.
A version of this article was originally published in the October 2018 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting the website.

https://www.morningstar.com/articles/89 ... -2018.html
I noticed that.
Morningstar also upgraded a few Vanguard funds: Global Equity, Strategic Equity, and Morgan Growth.

https://www.morningstar.com/articles/89 ... -2018.html

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Re: Morningstar downgrades several Vanguard funds

Post by whodidntante »

Low cost active management might be an asset magnet in the not too distant future.
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Re: Morningstar downgrades several Vanguard funds

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whodidntante wrote: Tue Nov 13, 2018 5:55 pm Low cost active management might be an asset magnet in the not too distant future.
Yeh.

I got "caught" when Gross left Pimco. Not because the "backup managers" took his place but because there was a very large outflow of money from the fund that made it almost impossible to handle efficiently. I didn't want to get burned again so I bailed on the Vg fund when Nassour left. It was even more worrisome when Vanguard didn't appoint one of the assistant managers to replace him.

Passively managed, low cost non- index funds have a place in a conservative portfolio, especially on the fixed income side.
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Re: Morningstar downgrades several Vanguard funds

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Vanguard FTSE All-World ex-US Small-Cap Index (VFSVX)
Downgraded to Bronze from Silver
We lowered this strategy because it has big weightings in materials and energy--two of the most volatile sectors. That makes it more volatile than most of its peers.
This is absurd. First, it's not true to any meaningful degree. And, second, even if it were, it's a market-cap-weighted index fund.

It just highlights how useless M* subjective ratings are, especially for index funds.

The facts:

VSS/VFVSX is 10.67% basic materials and 4.89% energy.
Schwab's international developed small cap ETF SCHC is 11.28% and 4.78%.
M*'s category benchmark is at 11.75% and 3.83%.
M* says that the category averages are 9.18% and 3.66%.
Vanguard Total International is at 8.85% and 7.23%.

I don't see any large weightings on an absolute or relative basis.
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Re: Morningstar downgrades several Vanguard funds

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jhfenton wrote: Tue Nov 13, 2018 7:37 pm This is absurd. First, it's not true to any meaningful degree. And, second, even if it were, it's a market-cap-weighted index fund.
My thoughts exactly. How do you "downgrade" an index fund based on its weightings?
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Re: Morningstar downgrades several Vanguard funds

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MJW wrote: Tue Nov 13, 2018 7:44 pm
jhfenton wrote: Tue Nov 13, 2018 7:37 pm This is absurd. First, it's not true to any meaningful degree. And, second, even if it were, it's a market-cap-weighted index fund.
My thoughts exactly. How do you "downgrade" an index fund based on its weightings?
M* is in the business to sell investment advice. While they do supply useful information, that does not mean their fund advice will be correct or even make sense, as in this case. However, these sort of nuanced moves, in the minds of certain individuals who utilize M*, help justify their own belief that M* is on top of all things financial. It's a good marketing technique for a specific niche in their customer base.

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Re: Morningstar downgrades several Vanguard funds

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any idea on why they downgraded teh bond funds? Right now, they are beating the index that shows up on the Vanguard site.
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Re: Morningstar downgrades several Vanguard funds

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jhfenton wrote: Tue Nov 13, 2018 7:37 pm
Vanguard FTSE All-World ex-US Small-Cap Index (VFSVX)
Downgraded to Bronze from Silver
We lowered this strategy because it has big weightings in materials and energy--two of the most volatile sectors. That makes it more volatile than most of its peers.
This is absurd. First, it's not true to any meaningful degree. And, second, even if it were, it's a market-cap-weighted index fund.
And there is a real reason this fund should be more volatile than most of its peers, which M* missed. All of the other international small-cap index funds hold only developed markets (or only emerging, but emerging-only funds are in a different category). If you add emerging markets to your portfolio, you are deliberately taking an additional risk, for the prospect of extra return. (I have done this for years; I overweight emerging markets for better diversification, and I hold the ETF class of FTSE All-World Ex-US Small-Cap rather than some other ETF because I want the emerging markets.)
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Re: Morningstar downgrades several Vanguard funds

Post by 2015 »

Random Musings wrote: Tue Nov 13, 2018 8:07 pm
MJW wrote: Tue Nov 13, 2018 7:44 pm
jhfenton wrote: Tue Nov 13, 2018 7:37 pm This is absurd. First, it's not true to any meaningful degree. And, second, even if it were, it's a market-cap-weighted index fund.
My thoughts exactly. How do you "downgrade" an index fund based on its weightings?
M* is in the business to sell investment advice. While they do supply useful information, that does not mean their fund advice will be correct or even make sense, as in this case. However, these sort of nuanced moves, in the minds of certain individuals who utilize M*, help justify their own belief that M* is on top of all things financial. It's a good marketing technique for a specific niche in their customer base.

RM
Everything M* does is marketing-based. Why else would they publish? Like all marketers, they know just how to target their victims.
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Re: Morningstar downgrades several Vanguard funds

Post by fennewaldaj »

jhfenton wrote: Tue Nov 13, 2018 7:37 pm
Vanguard FTSE All-World ex-US Small-Cap Index (VFSVX)
Downgraded to Bronze from Silver
We lowered this strategy because it has big weightings in materials and energy--two of the most volatile sectors. That makes it more volatile than most of its peers.
This is absurd. First, it's not true to any meaningful degree. And, second, even if it were, it's a market-cap-weighted index fund.

It just highlights how useless M* subjective ratings are, especially for index funds.

The facts:

VSS/VFVSX is 10.67% basic materials and 4.89% energy.
Schwab's international developed small cap ETF SCHC is 11.28% and 4.78%.
M*'s category benchmark is at 11.75% and 3.83%.
M* says that the category averages are 9.18% and 3.66%.
Vanguard Total International is at 8.85% and 7.23%.

I don't see any large weightings on an absolute or relative basis.
Yeah even if they are assuming the average active fund weighting is more correct for some reason its hardly like VSS has all that much more. I think morningstar reports are more useful for helping to evaluate active funds if you need/want to own one for some reason. Index funds is really all about the ER, tracking, and tax stuff.
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Re: Morningstar downgrades several Vanguard funds

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grabiner wrote: Tue Nov 13, 2018 10:09 pm And there is a real reason this fund should be more volatile than most of its peers, which M* missed. All of the other international small-cap index funds hold only developed markets (or only emerging, but emerging-only funds are in a different category). If you add emerging markets to your portfolio, you are deliberately taking an additional risk, for the prospect of extra return. (I have done this for years; I overweight emerging markets for better diversification, and I hold the ETF class of FTSE All-World Ex-US Small-Cap rather than some other ETF because I want the emerging markets.)
Morningstar wrote:Performance Pillar: Negative | Daniel Sotiroff 05/23/2018
This fund's total and risk-adjusted returns have been among the worst in the foreign small/mid-blend category from its launch in April 2009 through April 2018. It earns a Negative Performance Pillar rating.
Morningstar didn't miss it. The discussion is just in the fine print.

David acknowledges taking on additional risk with the EM over only developed and he accepts that. I on the other hand don't want the additional risk so I avoid EM. The funds in the category on average are more like me than David for whatever reason - maybe just history since investible EM is relatively new.

Morningstar's main overall metric is risk adjusted returns. That's what their star ratings are based on. I don't use star ratings to choose funds but I will reject those less than three.
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Re: Morningstar downgrades several Vanguard funds

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Doc wrote: Wed Nov 14, 2018 7:26 am Morningstar's main overall metric is risk adjusted returns. That's what their star ratings are based on. I don't use star ratings to choose funds but I will reject those less than three.
But that is not the basis for the gold, silver, bronze ratings. Those are more related to the, somewhat subjective, fund analysis reports.

I don't pay any attention to the star ratings, but do give some consideration to the metal ratings for managed funds (and the full analysis reports). If I am looking at low cost managed funds, the metal ratings are a quick screening tool to narrow the field. In most categories they have enough gold, silver, bronze funds to consider that I don't see much point in wading through everything else.
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Re: Morningstar downgrades several Vanguard funds

Post by jeffyscott »

grabiner wrote: Tue Nov 13, 2018 10:09 pmIf you add emerging markets to your portfolio, you are deliberately taking an additional risk, for the prospect of extra return. (I have done this for years; I overweight emerging markets for better diversification, and I hold the ETF class of FTSE All-World Ex-US Small-Cap rather than some other ETF because I want the emerging markets.)
Me too, but sometimes I wish I had gone with International Explorer or, better yet, kept T. Rowe International Discovery :oops: .
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Re: Morningstar downgrades several Vanguard funds

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jeffyscott wrote: Wed Nov 14, 2018 8:07 am
Doc wrote: Wed Nov 14, 2018 7:26 am Morningstar's main overall metric is risk adjusted returns. That's what their star ratings are based on. I don't use star ratings to choose funds but I will reject those less than three.
But that is not the basis for the gold, silver, bronze ratings. Those are more related to the, somewhat subjective, fund analysis reports.

I don't pay any attention to the star ratings, but do give some consideration to the metal ratings for managed funds (and the full analysis reports). If I am looking at low cost managed funds, the metal ratings are a quick screening tool to narrow the field. In most categories they have enough gold, silver, bronze funds to consider that I don't see much point in wading through everything else.
My point was only that Morningstar considers risk as well as returns. They also make comparisons with the other funds in the same category. A total foreign fund will have more risk than its developed market counterpart. Since the the Vanguard fund has more EM than the category average it will have more risk.

Whether or not anyone wants to take on more risk in the expectation of more return or better diversification as Grabiner wants is their own choice.
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