Successful investors are adept at buying good quality stocks, bond and funds on the cheap, and then profiting when those holdings realise their true value.
While not all investors have the analytical skills required to sort the true undervalued asset from ‘value traps’ it is easy to use professional research to your advantage.
Morningstar analysts identify those funds they expect to deliver positive real returns in the future and award them a Gold, Silver or Bronze rating.
This qualitative research is run alongside the Morningstar star rating which is quantitative research. Funds are awarded a one to five star rating dependent on the past three years performance. One star indicates a fund has significantly underperformed its peers and benchmark. Five stars indicates a fund has significantly outperformed its peer group and benchmark.
Therefore, a fund with rated Gold, Silver or Bronze, which also carries a low star rating, could be an undervalued asset due a uptick in performance. Using the Morningstar Fund Screener, we highlight five of these potential bouncers below.
Artemis UK Smaller Companies
Analyst Rating: Gold
Morningstar Rating: Two stars
The fund focuses on high-quality companies that demonstrate resilient business models. The investment approach is implemented through thorough bottom-up stock analysis based upon growth, value, estimate revision, and momentum.
M&G Recovery
Analyst Rating: Gold
Morningstar Rating: Two stars
The fund invests in companies that are in recovery situations and, in particular, companies that have undergone management changes or have underperformed the market.
Axa Framlington Equity Income
Analyst Rating: Silver
Morningstar Rating: Two stars
This fund is characterised by its exposure lower down the market-cap ladder, which also entails higher volatility relative to its peers, but is a good choice for those who can handle its risks.
Carmignac Patrimoine
Analyst Rating: Silver
Morningstar Rating: One star
The investment policy takes into account the principle of risk spreading by means of the diversification of investments. The allocation of the portfolio between the different asset classes based on fundamental analysis of the global macroeconomic environment.
Neptune Global Equity
Analyst Rating: Silver
Morningstar Rating: Two stars
The investment approach is based on Neptune’s philosophy, which aims to form positive views on asset classes, sectors and stocks and then back those judgments strongly.