Multiple changes to the management of some of Stewart Investors’ most popular and successful funds have caused Morningstar analysts to review their ratings on those where we see the change as significant or have concerns about the impact on shareholder returns.
Management Changes
Stewart Investors has announced its plans to change the named managers on three of its funds, effective 1 July 2016.
The three funds are:
- Stewart Investors Asia Pacific
- Stewart Investors Asia Pacific Leaders
- Stewart Investors Global Emerging Markets Leaders
These changes don't take effect until mid-2016 but there is likely to be a period of transition leading up to this date.
At the Stewart Investors Global Emerging Markets Leaders fund, Jonathan Asante will step down from his lead manager role. Ashish Swarup will step up to be lead manager alongside existing co-manager Tom Prew. Prew joined First State in 2006 and has been the lead manager at the Stewart Investors Global Emerging Markets fund since late 2013—this fund has a Morningstar Analyst Rating of Silver. Swarup joined the group more recently, having run emerging markets portfolios at Fidelity prior to joining First State in June 2014.
At the Stewart Investors Asia Pacific fund, Angus Tulloch will step down from his lead manager role to become co-manager, with Ashish Swarup stepping up as the new lead manager.
At the Stewart Investors Asia Pacific Leaders fund, Angus Tulloch will step down from his lead manager role, with Sashi Reddy stepping up to work alongside existing manager David Gait. Gait will become lead manager here. Gait has been at First State since 1997 and is the lead manager of the sustainability funds run by the group. Reddy joined the firm in 2008 and is lead manager on the Stewart Investors Indian Subcontinent fund—rated Bronze by Morningstar—and co-manager with Gait on the sustainability funds. The duo have already built an impressive track record together at the all-cap Stewart Investors Asia Pacific Sustainability fund, which has a Morningstar Analyst rating of Silver.
Mandate Change
In addition to the change in named managers at the Stewart Investors Asia Pacific Leaders fund, the firm is also proposing a change to the investment mandate of this fund. Unlike the personnel changes, this issue is subject to shareholder approval.
The firm's proposal is for the fund to follow the sustainability strategy developed and used by Gait at the Stewart Investors Asia Pacific Sustainability fund, but with a higher market-cap bias. The same is also being proposed at the Stewart Investors Worldwide Leaders fund.
Continuing Change at the Firm
This latest set of announcements brings further change at a company that has already seen a significant amount of change in recent months. In July 2015, First State Stewart split into two separate entities: First State Stewart Asia and Stewart Investors. As a result, the investment team was divided and no contact permitted between the two teams from thereon. That split caused us some concerns in terms of decreased resources, loss of experience and back office build-out, and as a result we reduced the Morningstar Analyst Rating on a number of the firm's funds from Gold to Silver in June 2015.
Morningstar's View
Following the latest announcement, we have moved the ratings on the Stewart Investors Global Emerging Markets Leaders, Stewart Investors Asia Pacific and Stewart Investors Asia Pacific Leaders funds to Under Review pending further information and analysis.
At both the Stewart Investors Global Emerging Markets Leaders and Asia Pacific funds, we believe the change of lead manager is significant. Although Swarup will follow the tried and tested First State investment approach, there is some flexibility within that for all managers to express their own views in terms of stock selection, which will in turn impact both fund positioning and performance. Within Stewart Investors, the lead manager on a fund is key when it comes to decision-making.
We take some comfort from the retention of experienced and long-tenured co-managers on both funds, nonetheless Swarup is relatively new at the firm and he brings existing portfolio management experience, under a different framework.
The situation is a little different at the Stewart Investors Asia Pacific Leaders fund, as there is the added complication of the impending change in investment strategy. The track record that Gait and Reddy have produced at their all-cap mandate leads us to believe that they should be able to produce good returns at the Asia Pacific Leaders fund in the future. However, we would like to fully understand their intended application of the process here, as well as the implications that the large- and mid-cap bias could bring on potential returns, before awarding a rating.
There is also the wider issue of the group's strategy, on which we will be seeking clarification. Having already seen one significant restructure earlier this year, we are keen to understand how this team expects to develop, as well as the specific roles that Angus Tulloch and Jonathan Asante will assume.
The firm has indicated that both are expected to remain as part of the investment team and will retain some fund management responsibilities, and Tulloch himself has expressed his desire to keep investing. We see these as positives and for that reason the Morningstar Analyst ratings at the firm's other funds—Asia Pacific Sustainability and Global Emerging Markets – remain unchanged, given the continuity of the funds' managers.
Given the split of the investment team in July 2015, we believe that Stewart Investors—and investors in their funds—need to retain the investment experience and input of Asante and Tulloch.
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