Morningstar, Inc. (NASDAQ:MORN)’s monthly ratings adjustments have come out, and while there weren’t many changes in general the bad outnumbered the good with just two upgrades and eight downgrades. Morningstar also initiated coverage on Harding Loevner Frontier Emerging Markets (HLFMX) at Neutral because its strong risk-adjusted returns are offset by high expense ratios and on Mairs & Power Small Cap (MSCFX) at Silver because of its solid management team and a better expense ratio. It also initiates coverage of AQR Risk Parity (AQRIX) at Bronzebut doesn’t give a detailed explanation for the rating.

Janus Overseas downgraded by Morningstar over its ‘terrible’ record

Morningstar senior analyst Bill Rocco highlights three of the eight downgraded funds, but it sounds like two of them are somewhat preemptive. Columbia Acorn International Select (LAFAX) was downgraded from Silver to Bronze not because of actual performance issues, but because a change in the management team means that there could be a change in results. Similarly, FPA Capital (FPPTX) has been downgraded from Silver to Bronze amid management changes, though this time the fund has also been in an extended slump. That’s still a recommendation, all Morningstar medalist funds are expected to outperform on a risk-adjusted basis in the medium to long-term, so in these cases the drop within medalist ratings can be interpreted as conservatism on Morningstar’s part.

The harshest criticism came for Janus Overseas (JNOSX) and its clone Janus Overseas Aspen (JAIGX) because the manager aggressively pursues high growth, contrarian stocks in emerging markets, and the risks haven’t been paying off.

“This daring approach has repeatedly backfired in recent years, so these foreign large-blend funds now have terrible one-, three-, and five-year records, especially on a risk-adjusted basis,” writes Rocco, downgrading the funds from Bronze to Neutral.

Spares upgrades don’t reflect the market

Rocco explains that BlackRock Multi-Asset Income (BAICX) has been upgraded from Neutral to Bronze because the decision to become risk-averse and focus on income in 2011 has paid off, particularly during sell-offs. The Natixis ASG Managed Futures Strategy (AMFAX) was upgraded from Neutral to Bronze thanks to outperformance so far this year and a reasonable expense ratio.

Since this isn’t the first month that downgrades have outnumbered upgrades, it may be tempting to read this as a sign that the market is getting stretched, but Morningstar assigns ratings on a five-year horizon not based on current market conditions.