While the Australian Ethical Smaller Companies fund has a reasonably well-equipped team, Morningstar said it lacked the experience and length of service of its more highly-rated rivals.
"The team has had some turnover in the past and while the firm has been making a push to rectify this, we'll be watching to see how the new hires settle in," Morningstar analyst Zac Wallis said.
However, portfolio manager Andy Gracey was singled out and Wallis said he had done an admirable job since he took up the helm as lead manager in 2008 after the departure of Alistair Clark.
Chief investment officer Martin Halloran joined Australian Ethical in August 2008 after the resignation of CIO David Ferris in 2008.
The small-cap fund also failed to impress because of the lack of detail in its stock research and modelling, Morningstar said.
"The team will invest in stocks that fail to meet the centre for Australian Ethical research's criteria when there is a strong enough investment case for it," Wallis said.
