Morningstar’s fund analysts assigned a Gold rating to just one fund in the past few weeks: DFA US Small Cap I. On the flip side, the research shop doled out negative ratings to Two Nuveen funds: Nuveen Tradewinds Global All-Cap A and Nuveen Tradewinds Value Opportunities A.
According to Morningstar’s analysts, DFA US Small Cap's unique twist on passive investing sets it apart from its competition. “The fund doesn't have to adhere to an index, and stocks that meet its market-cap criteria can be substituted easily for one another because DFA believes they all have the same return profile,” they wrote. “This wide opportunity set and small individual positions also enable a higher asset base without its being capacity constrained.”
Nuveen’s negative ratings didn’t come as a big surprise given the departure of star manager Dave Iben last month.
The fund manages $4.3 billion in assets as of December 31, 2011 and sports a net expense ratio of 37 basis points.
“A cloud of uncertainty hangs over Nuveen Tradewinds Value Opportunities,” according to the analysts. "Dave Iben, this fund's lead manager since its 2004 inception, announced that he will leave Tradewinds with three analysts by the end of June 2012. The departures are a major loss for the fund and the firm… Unfortunately, there is no natural successor at this fund or within the firm.”
The analysts further wrote that one of the Nuveen analysts leaving the firm oversaw coverage of basic materials stocks, “which this fund and the firm have long favored”. That sector will now be covered by a newer, less-experienced analyst.
Through March, investors have redeemed roughly one fourth of the fund's assets, which could have a negative impact on performance as holdings are sold quickly, according to the analysts.
“Uncertainty about the firm's stability and the appointing of unproven managers provide ample reason for investors to look elsewhere.”
The $2.3 billion fund has an expense ratio of 120 basis points.
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