Do you invest in US equities? The S&P 500 stock market has experiences a significant rally in recent years, outperforming all other indices in 2013, and reaching ever new all-time-highs.
But while the market itself has proved a good investment, Morningstar analysts are not as pleased with many US equity funds. Over the past week, Morningstar fund analysts have reassessed the ratings on five funds that invest in American companies.
Of those five, four have been downgraded following poor stock selection in a rising market, and a turnover of staff within the fund’s management team.
Analysts also recently downgraded Henderson Global Trust (HGL) because they felt the manager had not made successful stock selections within the US equity space. Analysts explain the reasons for these downgrades below.
M&G American – downgraded to Neutral
Analyst are concerned that stock selection has been weaker over recent years and the fund’s return profile has been more volatile than they would have expected. There have also been more changes in the team than they would ideally like to see. Consequently Morningstar analysts believe it is prudent to lower the fund’s rating to Neutral reflecting the reduction in their overall conviction.
Aviva US Equity Income – maintained at Bronze
Following the announcement that Affiliated Managers Group is to buy River Road Asset Management from Aviva Investors, analysts retained the Bronze rating on the fund as there will be no change in management.
Schroder US Smaller Comp – downgraded to Silver
This fund previously held a Gold rating. Although the fund manager Jenny Jones has been in situ for an extended period of time, there have been some changes to the team in recent years. The manager’s overly defensive positioning coupled with disappointing stock selection have resulted in a period of sustained underperformance which has led to a deterioration of the fund’s risk-return profile.
Nordea-1 North Am Value – downgraded to Neutral
This fund was previously Under Review following a change in management and the investment process. The new sub-adviser, The London Company, a firm based in the US, will follow a value approach with a focus on downside protection. Analysts need time to build conviction in the fund’s new team and process so they are therefore awarding the fund a Neutral rating.
Schroder US Mid Cap – downgraded to Silver
Although analysts have been disappointed with the level of underperformance in recent years, recent changes to portfolio construction have been encouraging. However, this is a competitive category and analysts consider the fund to be less appealing than some of its peers. The fund’s rating is therefore downgraded from Gold to Silver.
