Morningstar Fund Ratings: Weekly Round-up

BGF Global High Yield Bond – Bronze

Arthur Wu

The fund is managed by five experienced portfolio managers in Jimmy Keenan, David Delbos, Mitch Garfin, Michael Phelps and Jose Aguilar, each with different sets of responsibilities. We also like the strength of analyst support the team enjoys. Rather than sticking to a preferred spot on the credit-quality spectrum, the fund can invest in different parts of the capital structure and the managers have used this flexibility to their advantage thus far. It should be noted that given the strategy’s colossal size (approx. USD 43 billion as of end October 2016), the fund could have trouble staying nimble in certain areas of the high yield market.

Eastspring Investments US Corporate Bond – Bronze

Shannon Kirwin

The fund’s manager, Mark Redfearn, boasts two decades of experience and has generated an impressive track record during his nine years at the helm of this strategy. The strategy’s strengths lie in its broad diversification across large number of individual securities and its emphasis on bottom-up credit research. The manager works with a large, experienced and stable team of more than thirty credit analysts, and security selection has accounted for the majority of the fund’s outperformance versus its benchmark since inception. Though its fees are slightly above-average, we’re convinced by its stable management, extensive research resources and proven strategy. 

Parvest Bond Asia ex-Japan – Neutral

Don Yew

This fund has been managed by Singapore-based Adeline Ng since 23 December 2001. Ng comes across as a knowledgeable investor; however, we have concerns about the high turnover of the analyst team that directly supports her. Although the fund’s credit-focused investment process is sensible and has delivered respectable long-term peer-relative returns, we note that it is dependent on the analyst team, which is relatively new. Hence, we need more time to see how the members work together to contribute to the process.

Upgrades

JOHCM Asia ex-Japan – Silver

Mark Laidlaw

Samir Mehta is the driving force behind our increased conviction at this fund. He has over 25 years' experience, the last five of which have been at this firm. His insights at both a stock and macro level make him stand out relative to most peers and we like that the portfolio is truly conviction-based with little attention paid to the MSCI AC Asia ex-Japan index. The strategy focuses on firms that boast long sustainable long-term growth, an ability to consistently generate high returns on capital and which have shown themselves to be resilient in times of economic distress. The end portfolio has typically had structural biases to areas such as telecoms, gaming and consumer-related names, with a natural tendency to steer clear of areas like financials. The track record here is very impressive against both peers and the index.

Downgrades

Artemis UK Special Situations – Bronze

Samuel Meakin

After an extended period of subdued returns relative to peers, the fund trails the UK Flex-Cap category average over three and five years to the end of November 2016. It remains ahead of the index and category average over lead manager Derek Stuart’s tenure from launch in early 2000. However, a large proportion of these active returns came in the first few years of the fund’s life, and there have been some changes to the portfolio’s structure since, such as the reduction in the small-cap allocation.

The fund’s value bias has been a headwind to performance in recent years, and our attribution analysis indicates that the managers have continued to demonstrate some positive stock selection over the period of weaker relative performance. While this supports a positive view, we no longer believe the fund merits our highest rating relative to competitors that follow similar special situations strategies, an area of the market that has become more competitive.

NN (L) European High Dividend – Negative

Jeffrey Schumacher

Despite the long experience of fund manager Manu Vandenbulck and the ample resources at his disposal, the fund has failed to impress us so far. Vandenbulck has a strong preference for value stocks, which he sometimes seems to apply at the cost of dividend sustainability. Over time, the portfolio has suffered from several dividend cuts, in telecom amongst others. This has affected stock selection results and questions the execution and quality of this fund’s process.

This is a concern to us, and it has been a drag on performance over various time horizons, while also elevating risk metrics, such a standard deviation and maximum drawdown, versus peers. This leaves us unconvinced of the quality of execution and stock selection, which are the responsibility of Vandenbulck. As such, we think investors have better options in this category. We therefore lower the Morningstar Analyst Rating to Negative.

Ratings Moved to Under Review

Old Mutual UK Equity Income

Peter Brunt

Old Mutual Global Investors (OMGI) appointed Ed Meier the lead manager of this fund on December 14 2016, following the departure of former manager Stephen Message. Meier has worked with OMGI CIO Richard Buxton and Errol Francis for several years, including co-managing the Schroder UK Equity fund alongside Francis for over three years before joining OMGI in 2013.

He has no experience running an equity income mandate, but will manage the fund along the same lines as is used by Buxton on the UK Alpha strategy, with a greater focus on generating a high and growing dividend. The fund is therefore placed Under Review while we assess the new manager and approach.