Holy Smokes! These Funds Could Get Barbecued

#Morningstar  #HighRiskMutualFunds #MutualFundInvesting

Three bad bets with high risks.

00:00 Introduction

00:11 Baron Partners BPTRX

00:44 Federated Hermes Kaufmann KAUAX

01:20 Van Eck Global Resources GHAAX

Russel Kinnel: They can’t all be great. Today, I’m going to look at three funds with Negative ratings. In these cases, we found some fundamental flaws that made us think these funds are just bad bets with high risk.

We downgraded Baron Partners when its Tesla TSLA stake grew to more than half the fund’s assets under management. While we like most of the Baron funds we rate, that was just too extreme, and we gave the fund a Below Average Process rating. Tesla’s declining share price has actually taken it down to 35% of the fund’s assets at the end of March. I’m not sure where Tesla’s shares are headed from here, but it’s clearly a very volatile stock. The fund has also doubled down on Elon Musk with an additional 15% in SpaceX securities.

Federated Hermes Kaufmann doesn’t have giant company bets like Baron, so I’d say the downside is not quite as extreme. But it does have fundamental flaws. For starters, fees are a hefty 1.96% for the A shares. The fund would have to execute brilliantly to overcome that huge hurdle. We also think both People and Process are subpar now that the founders have stepped back. More of the current managers are also near retirement age, so more turnover seems likely. Finally, the strategy is a vague blend of top-down and bottom-up that just hasn’t been executed well.

Van Eck Global Resources gives us pause with its wild swings that are just all over the map. The fund makes bold top-down calls, and it changes those so that the fund’s exposures change dramatically. On top of that is a layer of ESG screens that feel a bit of an odd fit with a fund investing in oil and gas stocks, among others. We rate Process Below Average.

What to watch from Morningstar.

3 Great Funds for the Next 10 Years https://youtu.be/hpJWRq-d0LA?si=0noZeRXJ7xng-gAS

3 Funds for a Recession https://youtu.be/p5kCsSosvoE?si=hEQG7aHOUHzUqBMm

3 Funds for College Grads https://youtu.be/GwPD0UyYObM?si=Nbs6hKe2qEaRXY_F

3 Great Balanced Funds for 2025 https://youtu.be/z0d4GlGdtAs?si=m4v44ZXMwg9b144X

Read what our team is writing.

Russel Kinnel https://www.morningstar.com/people/russel-kinnel

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