3 Funds With Warning Signs

Here are three funds whose pillar rating downgrades coincided with disappointing returns.

Alger Small Cap Focus

The People rating for Alger Small Cap Focus AOFAX was cut to Below Average from Average in March 2026, driven by the team’s high turnover: Ten analysts have left the group since 2020. At the same time, lead manager Amy Zhang has shifted to a different approach. Zhang’s 25 years of industry experience are largely built around fundamentals-driven investing with longer holding periods. Since 2020, however, this portfolio has relied more on macroeconomic data and price momentum and has demonstrated higher turnover in its holdings.

The combination of an unstable team and a shifting investment approach undermines the fund’s potential. Poor stock picks in the technology, industrials, and consumer discretionary sectors detracted from performance. This translated into a riskier, less-rewarding portfolio compared with those of peers. Over the trailing three-, five-, and 10-year periods through May 2026, the fund sat in the worst quartile of small-growth peers for Morningstar Risk-Adjusted Returns.

FMI Large Cap

On the other hand, FMI Large Cap FMIHX consistently takes a more cautious approach, but execution concerns drove its Process rating to Average from Above Average in November 2025. The strategy holds only 20-30 stocks, evaluating companies by business models, management, profitability, and return on invested capital. The portfolio skews away from mega-cap and growthier stocks. The team attempts to account for the intangible value of companies in the latter cohort that have seen recent gains, such as members of the Magnificent Seven (Alphabet GOOGL, Amazon.com AMZN, Apple AAPL, Meta Platforms META, Microsoft MSFT, Nvidia NVDA, and Tesla TSLA), but the results have not been promising.

The fund sat in the worst decile of large-blend Morningstar Category peers for risk-adjusted returns over the trailing three-, five-, and 10-year periods. The poor risk-adjusted results reflect a prolonged inability to keep up in rising markets. Detractors in those conditions include allocation missteps in better-performing sectors, raising concerns with the efficacy of the stock evaluation and selection process.

Neuberger Multi-Cap Opportunities

Similarly, Neuberger Multi-Cap Opportunities NMUAX holds 30-50 stocks that are selected by cash flows, valuations, and management competency. Missteps in the selection process resulted in costly exposure to laggards, driving a poor record in up markets. This supported a downgrade of the Process rating to Average from Above Average in July 2025. The approach was consistently underweight large- and mega-cap stocks while investing in small- and mid-cap companies that dragged on performance, such as Avery Dennison AVY, Nordson NDSN, and Graphic Packaging GPK, in the first half of 2025.

The fund’s risk-adjusted returns were in the worst quartile among large-blend peers over the trailing three, five, and 10 years through May 2026. Like FMI Large Cap, volatility is lower than that of the typical peer, with poor upside performance depressing overall results. Attribution data highlights poor stock-picking as a major detractor.

This article first appeared in the June 2026 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.