Updated Aug. 10, 2011
Morningstar on Tuesday cut its rating on two target-date fund families, sending Charles Schwab to “below average” from “average” and placing DWS Investments in the “bottom” category down from “below average.”
Charles Schwab's fund family was downgraded because of the “sudden” July departure of the fund family's top manager along with “a great deal of uncertainty” about the fund family, according to an e-mail from Morningstar spokeswoman Alexa Auerbach explaining her firm's decision.
A report by Morningstar analyst David Falkof identified the manager as Daniel Kern, lead manager of the fund family since October 2008. The report also said there was “no clear successor to Mr. Kern,” adding that members of Schwab's collective trust group are supervising the fund family.
“Investors would be better served in an option with greater management and investment stability,” the report said.
The DWS LifeCompass fund family rating was cut due to “continued deterioration in the performance of underlying funds and turnover among management of many of those funds,” Ms. Auerbach wrote.
“The LifeCompass funds clearly haven't been a success story so far,” said a Morningstar report by fund analyst Greg Carlson. “Since the series was created in November 2007, each of the five funds has lagged at least 80% of its category peers through July 2011.”
Mr. Carlson's report said LifeCompass funds “have failed to generate strong interest among investors or plan sponsors,” adding that the funds are “hampered” by above-average expense ratios. “It's difficult to see the funds' prospects improving anytime soon. Investors should steer clear of them,” he wrote.
DWS joins target-date families from AllianceBernstein and OppenheimerFunds in the bottom group of Morningstar's evaluation, whose ratings include “top,” “above average,” “average,” “below average” and “bottom.”
Morningstar evaluates each fund family using five criteria — performance, portfolio quality, price, fund managers and the fund's parent.
"We are committed to getting the right team in place," said Alyson Nikulicz, a spokeswoman for Charles Schwab. She would not elaborate.
Lem Brewster, a spokesman for DWS, said his company had no comment. Officials at Schwab could not be reached.