Dowgrades
Kempen European High Dividend Fund – Silver
Jeffrey Schumacher
While we continue to think this fund remains a very good choice for European equity income exposure, we're slightly less enamoured with it than we had been. Under the supervision of Jorik van den Bos, the team applies a strict and distinguishing concept of dividend investing, which provides discipline but also can become too restrictive, in our view. We continue to have our reservations regarding the strict application of a single absolute dividend yield hurdle as it can potentially limit their investment opportunities and the flexibility to capture their unorthodox philosophy in the final portfolio. Although we continue to see potential for outperformance in the hands of the seasoned investment team running the strategy, its execution somewhat reduces our conviction. We believe a Silver rating better reflects the fund's relative merits in its Morningstar category.
Royal London UK Government Bond – Bronze
Carlos Lucar
We are lowering our conviction on this fund despite the significant experience of comanagers Paul Rayner and Craig Inches and their continuity at the helm. The duo, backed by RLAM’s close-knit fixed income team, implements a structured investment process that drives the fund’s strategic positioning. Over the past few years, the fund has retained an underweight duration stance which has been the key driver of its underperformance. While the managers rely on tactical positioning to add value, it is disappointing to see this has not been sufficient to offset the negative effect of the short duration positioning. Furthermore, the above-median fees for the fund are an additional headwind for the managers to overcome.
Ratings Moved to Under Review
Legg Mason IF ClearBridge US Equity Income
Fatima Khizou
ClearBridge has announced that Hersh Cohen will step off Legg Mason IF CB US Equity Income at the end of 2017 as part of a succession plan. Cohen--an industry veteran with nearly 50 years of investment experience--will continue to serve as ClearBridge’s co- CIO with Scott Glasser. Glasser, who helped Cohen design the ClearBridge Dividend Strategy in 2003, which mirrors the US-domiciled offering, will join current co-managers Michael Clarfeld and Peter Vanderlee on this fund after Cohen steps away. To assess the full impact of the pending change, this fund's Morningstar Analyst Rating of Bronze is Under Review.
