New Coverage
Franklin European Corporate Bond – Neutral
Francesco Paganelli
We have initiated coverage of Franklin European Corporate Bond with a Morningstar Analyst Rating of Neutral. We view positively the breadth and experience of Franklin’s fixed-income group, and we think fund managers David Zahn and Emmanuel Teissier have a wealth of resources at their disposal. They adopt an investment process that blends top-down views with the bottom-up inputs of Franklin’s credit research team, aiming to outperform the Barclays Euro Agg Corps benchmark through a combination of security selection, sector allocation, and yield-curve positioning. The process execution has not impressed so far, however, and the fund has struggled to stand out under the managers’ tenure. The fund’s higher beta, on average, led to consistently larger drawdowns relative to its benchmark and peers. Finally, the fund’s above-average costs limit our overall conviction.
Upgrades
Edinburgh Investment Trust (EDIN) – Silver
Peter Brunt
The Edinburgh Investment Trust has been upgraded to a Morningstar Analyst Rating of Silver. It was previously rated Bronze. Mark Barnett took over the fund’s management following the resignation of Neil Woodford in January 2014. Over two years down the line, we believe that Barnett has so far proved a worthy successor to one of the highest-profile managers in the business. He has done a good job managing an asset transfer on what was an unprecedented scale and has continued to produce strong relative returns on this fund.
While we still have some reservations, our conviction is growing in his ability to successfully manage his strategy across such a scale of assets and balance this with his team management responsibilities. This, combined with the highly competitive pricing, leads us to a more positive view on the fund.
Downgrades
Franklin Mutual European – Silver
Mathieu Caquineau
Given the quality and experience of its management team, as well as the long-term record achieved by its value strategy, Franklin Mutual European remains a very good option within the Europe large-cap value Morningstar Category. But the higher level of risk displayed in recent years, combined with somewhat less effective stock-picking, make us think a Morningstar Analyst Rating of Silver is more appropriate than the previous Gold rating.
Heptagon Oppenheimer Developing Markets Equity Fund – Neutral
Simon Dorricott
The Heptagon Oppenheimer Developing Markets Equity fund has been downgraded to a Morningstar Analyst Rating of Neutral. It was previously rated Silver. Management of this Heptagon fund is outsourced to Oppenheimer and specifically, Justin Leverenz, who implements a strategy with a robust process and a strong track record. However, in the near future this relationship is due to cease and Heptagon will be appointing a new investment house and fund manager to run this portfolio. As we have not conducted due diligence and research on the new manager, the fund is held at a Neutral rating.
Re-Assigned from Under Review
Fidelity Funds - Global Inflation Linked Bond – Neutral
Ashis Dash
The Fidelity Funds - Global Inflation Linked Bond fund has been assigned a Morningstar Analyst Rating of Neutral. The fund was previously placed Under Review following the announcement that lead manager, Andy Weir, will be leaving Fidelity at the end of August 2016. Prior to that it held a Neutral rating. Comanager Tim Foster took over as lead manager after Weir’s departure and is supported by new comanager Ian Fishwick. Foster has close to a decade’s experience in managing cash and corporate credit funds, but only started managing inflation-linked mandates in late 2015. Moreover, he is also involved in managing over 20 funds spanning a wide array of fixed income strategies.
In addition, while the broader process implemented by Weir remains in place, Foster has made some changes to it since taking over the fund. All said, Foster’s limited experience in the inflation-linked space combined with his wide-ranging responsibilities, recent tweaks to the approach and the fund's poor showing since 2011 give us pause for thought.
Liontrust Macro Equity Income – Neutral
Sam Meakin
The Liontrust Macro Equity Income fund has been assigned a Morningstar Analyst Rating of Neutral. The fund was previously Under Review following the announcement of Jan Luthman’s retirement. The fund continues to be managed by the remaining co-managers, Stephen Bailey and Jamie Clark, using the same macro-orientated approach. Historically, Luthman provided the greatest input on macro matters, with Bailey and Clark more focused on stock-specific research, although we acknowledge that their involvement in macro analysis has increased in recent years. While we view Bailey and Clark as competent co-managers, we see the departure of Luthman as a loss given the fund’s approach.
Liontrust Macro UK Growth – Neutral
Sam Meakin
The Liontrust Macro UK Growth fund has been assigned a Morningstar Analyst Rating of Neutral. The fund was previously Under Review following the announcement of Jan Luthman’s retirement. The fund continues to be managed by the remaining co-managers, Stephen Bailey and Jamie Clark, using the same macro-orientated approach. Historically, Luthman provided the greatest input on macro matters, with Bailey and Clark more focused on stock-specific research, although we acknowledge that their involvement in macro analysis has increased in recent years. While we view Bailey and Clark as competent co-managers, we see the departure of Luthman as a loss given the fund’s approach.
RobecoSAM Sustainable Agribusiness Equity – Neutral
Barbara Claus
We have reassigned the Morningstar Analyst Rating of Neutral to the fund RobecoSAM Global Agribusiness. The fund had been placed under review after the previous manager, Martin Jochum, had left RobecoSAM by the end of 2015. We think that new manager Holger Frey, who joined from Deutsche AM’s European equity team in May 2016 and has prior experience in the agribusiness sector, will be able to apply the fund’s process adequately. He will be also supported by the experienced deputy and interim manager of the fund, Dieter Küffer, and RobecoSAM’s analyst team.
