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Seriously, wasn't it five stars last month? I don't have evidence of it, but that's my recollection. If so, that's a mighty fast fall from grace.
In related news, Valeant is down another 14% for the day (Thursday, 11/5).
And, in a freakish development, the fund with the second-largest stake in Valeant is up 16.5% YTD. That's Tanaka Growth (TGFRX), with an 11% Valeant position.
Valeant down nearly 20% this morning on no news aside from a potential investigation into drug pricing, but it felt like someone large was trying to check out of the hedge fund hotel that is Valeant before everyone else does.
I still feel like this is an instance where it doesn't matter if Valeant did anything illegal; the reputation of the business is so bad that the story feeds on itself and massive investors start giving up because they know it becomes getting out before everyone else does. On the same topic, it absolutely wouldn't surprise me if the Valeant story isn't over and real corruption is uncovered.
As for Ackman, while I have respect for him as an investor, I still find it incredibly amusing that he went after Herbalife because he was trying to protect the average person from their business practices. He then goes massively, massively long on the drug company buying up drugs and massively jacking up prices.
As of today, the three year rating dropped to one star (a 3 star decrease), its five year rating dropped two notches to three stars, and even its ten year performance took a hit, losing a star - down to four stars.
With a three year risk rating of high, and a three year reward rating of low, you can't get more solidly one star.
11/04/2015 MFLDX: MainStay Marketfield I The Morningstar Star Rating for this fund has changed from 3 stars to 2 stars. For details, click here RPHYX: RiverPark Short Term High Yield Retail The Morningstar Star Rating for this fund has changed from 2 stars to 1 star. For details, click here HHCAX: Highland Long/Short Healthcare A The Morningstar Star Rating for this fund has changed from 4 stars to 3 stars. For details, click here NEFZX: Loomis Sayles Strategic Income A The Morningstar Star Rating for this fund has changed from 3 stars to 4 stars. For details, click here MINDX: Matthews India Investor The Morningstar Star Rating for this fund has changed from 3 stars to 4 stars. For details, click here WSCVX: Walthausen Small Cap Value The Morningstar Star Rating for this fund has changed from 4 stars to 3 stars. For details, click here BRTNX: Bretton Fund The Morningstar Star Rating for this fund has changed from 3 stars to 2 stars. For details, click here
SEQUX rates a 1 across the past 1 and 3 year periods and a 3 across the past 5 year period ... through October in the MFO system, based on Martin risk adjusted return. Drawdown reached 21% in October. Since M*'s composite rating is based on 3, 5, and 10 year ratings, would not be surprised if it now scores 3 stars.
Below are its risk/return metrics across various periods. Note that through October anyway, it only lost 3% for year, despite its October collapse, and it remains a top quintile fund across the current full cycle, which began November 2007.
The M* analyst rating page says the main reason for the fund's being "under review" is the resignation of the two independent board members, and secondarily, the stake in Valeant, which "illustrates the fund's heightened risk levels."
Aside: isn't it amazing how fast "Valeant" has become a household word?
Ya know, Charles adds some clarity with the data. Recent performance hasn't been so hotsy-totsy. Add to that the (reasonable) supposition that their huge Valeant holding is a dead man walking, do the math, and M* pretty much had to knock off some stars. A cautionary tale for those who believe that concentrated MFs and high active share numbers hold to the virtuous path, in and of themselves. When one goes with concentration anywhere inside the portfolio, I think it's important to mine a little deeper on the screening before making choices, and to look at other stats we rarely talk about on the Board: tracking error and information ratio. [I think it was @MJG who made this point in a comment over a year ago] Anyone know how those figures have moved for SEQUX, over the past 5 years?
And, in a freakish development, the fund with the second-largest stake in Valeant is up 16.5% YTD. That's Tanaka Growth (TGFRX), with an 11% Valeant position.
David
TGFRX benefited by its position in FING B Fingerprint Cards, up 123% over the past 3 months and up 1240% YTD.
Why people are surprised with the change in stars of the fund ? Star rating is purely on mechanical calculations based on the risk-adjusted performance of the funds and a reflection of their aggregate past record (3, 5 and 10 years) with more weightage long term record than short. Periodically star ratings are caluculated every year and I am not sure how frequently they do that and publish the new start ratings of the funds. If M* mentioned this fund is under review, that is for their qualitative rating (Gold, Silver, Bronze, etc.) based on their Analst analysis of the fund
Recent performance hasn't been so hotsy-totsy. Add to that the (reasonable) supposition that their huge Valeant holding is a dead man walking, do the math, and M* pretty much had to knock off some stars
Certainly the large Valeant holding is a good explanation for Sequoia's past performance. But it sounds like you're making a different point - that Valeant will affect future performance.
Star (as opposed to analyst) ratings are purely formulaic, applied without judgment, based on past performance. That you (and likely the rest of the investing world) expect Valeant to pull Sequoia's performance down further has no effect on the M* star rating. Stars are strictly a scorecard, not a ouija board.
That you (and likely the rest of the investing world) expect Valeant to pull Sequoia's performance down further has no effect on the M* star rating.
Of course suppositions about the future performance of Valeant's common would not go into current star ratings. However, today's performance is in the books and is now past performance, as is its effect on SEQUX's NAV. And the performance of Valeant's common between its plunge on Oct 21 and today is also past performance, as is its effect on SEQUX's NAV during this time, as is its effect on SEQUX's performance numbers, enough to jar even its 3 and 5 yr TR figures. Doing the math and comparing those adjusted numbers to its peer group, my interpretation is that M* has now determined that SEQUX is a 3-star fund, based on past performance.
I was suggesting, with my dead man walking comment, that if M* had any reluctance to defer the star rating downgrade (1) because of, or as a courtesy to, SEQUX's fine historical record and management, and/or (2) because good news re. Valeant might emerge any day which would turn around its stock price in a jiffy, then today's "second leg down" may have relieved them of their reluctance to make the move. They simply couldn't wait any longer, because there was no longer reason to do so--- their star rating of SEQUX had to reflect reality, in the here and now.
Regarding delay in publishing monthly figures, I haven't found a US statement, but this Australian M* statement is somewhat consistent with what you're seeing here:
"How Often are Morningstar Ratings (Star Ratings) Updated? "Morningstar Ratings (Star Ratings) are recalculated and republished in the second week of each month, at the same time as performance figures. " http://www.morningstar.com.au/Funds/FundsFaq#FFAQ14
As far as M* delaying data analysis is concerned, some of their methodology does build in lags. For example, when they categorize a fund, the assigned category does not necessarily reflect the current portfolio. That's done essentially for the second reason you stated - that transitory shifts may be just that and not reflect the overall character of the fund. Even so, there is a well-defined, methodically followed process; it's just that it includes some hysteresis.
@msf Thanks for the factoids; they were "in there," but I wouldn't have recovered them without your assist. Several years ago, when I found myself standing on my head repeatedly to try to explain why data on different pages didn't match up, and when they would say one thing and do something else (or not do it), I decided not to use M* as a go-to source, so I don't much care what they do, or when they do it, or how many stars they see, or what kind of metallic glaze they choose for different shiny objects.
On Sequoia: stars are mechanical, regularly recalculated and backward-looking. I was mostly surprised to see a two star jump.
On Tanaka: Fingerprint Cards AB is, indeed, up 1200% this year. Morningstar, though, reports a "first purchase" data of August 31 for Tanaka. Since then they've got a double from it.
Sequoia's status on Morningstar seems to have gone from "Under Review" back to "Gold" now. Maybe their review consisted of reading this thread?
The revised analyst report says the board resignations that M* said triggered the review of the fund were just a disagreement, nothing to get excited about. The report closes with this:
"Goldfarb and Poppe know that it will take Valeant time to recover, but they also believe that it has sufficient cash flow to service its debt and opportunities for organic growth. The fund itself is unimpaired too, as Goldfarb and Poppe's clear-eyed and patient approach to identifying value remains intact. For this reason, the fund retains its Morningstar Analyst rating of Gold."
The "review" appears to have consisted of a phone call to fund management. I find it pretty telling that they give such a level of deference to these guys, and none whatsoever to others, including, for example, J. Gundlach.
@Andy Sounds deep and thorough to me. And now I must be off to complete paperwork for my $100M "personal," to satisfy a terrible itch I have to make a charitable contribution to my alma mater (it is their world; we just live in it). Hoo, boy, the pig just needed a little lipstick, and she's good to go. Yes, pretty telling.
The "review" appears to have consisted of a phone call to fund management. I find it pretty telling that they give such a level of deference to these guys, and none whatsoever to others
I think it is a fair approach. After all, it is basically the same way Sequoia "reviewed" Valeant.
Comments
I still feel like this is an instance where it doesn't matter if Valeant did anything illegal; the reputation of the business is so bad that the story feeds on itself and massive investors start giving up because they know it becomes getting out before everyone else does. On the same topic, it absolutely wouldn't surprise me if the Valeant story isn't over and real corruption is uncovered.
As for Ackman, while I have respect for him as an investor, I still find it incredibly amusing that he went after Herbalife because he was trying to protect the average person from their business practices. He then goes massively, massively long on the drug company buying up drugs and massively jacking up prices.
http://www3.troweprice.com/fb2/fbkweb/gateway/snapshot.do?ticker=SEQUX
As of today, the three year rating dropped to one star (a 3 star decrease), its five year rating dropped two notches to three stars, and even its ten year performance took a hit, losing a star - down to four stars.
With a three year risk rating of high, and a three year reward rating of low, you can't get more solidly one star.
11/04/2015
MFLDX: MainStay Marketfield I
The Morningstar Star Rating for this fund has changed from 3 stars to 2 stars. For details, click here
RPHYX: RiverPark Short Term High Yield Retail
The Morningstar Star Rating for this fund has changed from 2 stars to 1 star. For details, click here
HHCAX: Highland Long/Short Healthcare A
The Morningstar Star Rating for this fund has changed from 4 stars to 3 stars. For details, click here
NEFZX: Loomis Sayles Strategic Income A
The Morningstar Star Rating for this fund has changed from 3 stars to 4 stars. For details, click here
MINDX: Matthews India Investor
The Morningstar Star Rating for this fund has changed from 3 stars to 4 stars. For details, click here
WSCVX: Walthausen Small Cap Value
The Morningstar Star Rating for this fund has changed from 4 stars to 3 stars. For details, click here
BRTNX: Bretton Fund
The Morningstar Star Rating for this fund has changed from 3 stars to 2 stars. For details, click here
Below are its risk/return metrics across various periods. Note that through October anyway, it only lost 3% for year, despite its October collapse, and it remains a top quintile fund across the current full cycle, which began November 2007.
Aside: isn't it amazing how fast "Valeant" has become a household word?
[I think it was @MJG who made this point in a comment over a year ago]
Anyone know how those figures have moved for SEQUX, over the past 5 years?
Kevin
If M* mentioned this fund is under review, that is for their qualitative rating (Gold, Silver, Bronze, etc.) based on their Analst analysis of the fund
Star (as opposed to analyst) ratings are purely formulaic, applied without judgment, based on past performance. That you (and likely the rest of the investing world) expect Valeant to pull Sequoia's performance down further has no effect on the M* star rating. Stars are strictly a scorecard, not a ouija board.
I was suggesting, with my dead man walking comment, that if M* had any reluctance to defer the star rating downgrade (1) because of, or as a courtesy to, SEQUX's fine historical record and management, and/or (2) because good news re. Valeant might emerge any day which would turn around its stock price in a jiffy, then today's "second leg down" may have relieved them of their reluctance to make the move. They simply couldn't wait any longer, because there was no longer reason to do so--- their star rating of SEQUX had to reflect reality, in the here and now.
Here are two statements from M* that the calculations are done monthly:
(In response to: " how often/when the star ratings are updated?") "Fund star ratings are calculated monthly." Edgars Vimba (Morningstar).
http://socialize.morningstar.com/NewSocialize/forums/t/274950.aspx (1/19/2011)
"So, any fund can get [a star rating]. We update it monthly" Russ Kinnel (Morningstar).
http://www.morningstar.com/cover/videocenter.aspx?id=662384 (8/21/14)
Regarding delay in publishing monthly figures, I haven't found a US statement, but this Australian M* statement is somewhat consistent with what you're seeing here:
"How Often are Morningstar Ratings (Star Ratings) Updated?
"Morningstar Ratings (Star Ratings) are recalculated and republished in the second week of each month, at the same time as performance figures. "
http://www.morningstar.com.au/Funds/FundsFaq#FFAQ14
As far as M* delaying data analysis is concerned, some of their methodology does build in lags. For example, when they categorize a fund, the assigned category does not necessarily reflect the current portfolio. That's done essentially for the second reason you stated - that transitory shifts may be just that and not reflect the overall character of the fund. Even so, there is a well-defined, methodically followed process; it's just that it includes some hysteresis.
http://www.forbes.com/sites/antoinegara/2015/11/06/valeant-ceo-michael-pearson-sells-1-3-million-shares-after-margin-call-on-100-million-loan/
On Tanaka: Fingerprint Cards AB is, indeed, up 1200% this year. Morningstar, though, reports a "first purchase" data of August 31 for Tanaka. Since then they've got a double from it.
Cheers,
David
"Goldfarb and Poppe know that it will take Valeant time to recover, but they also believe that it has sufficient cash flow to service its debt and opportunities for organic growth. The fund itself is unimpaired too, as Goldfarb and Poppe's clear-eyed and patient approach to identifying value remains intact. For this reason, the fund retains its Morningstar Analyst rating of Gold."
The "review" appears to have consisted of a phone call to fund management. I find it pretty telling that they give such a level of deference to these guys, and none whatsoever to others, including, for example, J. Gundlach.
Derf
http://finance.yahoo.com/news/valeant-ackman-must-face-u-013040755.html