New Ratings
BGF Global Equity Income – Neutral
Jeffrey Schumacher
We think the fund follows a promising strategy for a conservative dividend investor, but we need more team stability to become convinced. The fund has been managed by Stuart Reeve since its inception in November 2010, and co-portfolio manager Andrew Wheatley-Hubbard has been with the fund since 2013. Both are not overly experienced managers, while Wheatley-Hubbard is not fully dedicated to the strategy.
They have ample resources to support them, but there has been more turnover than we would like to see. The strategy is a global quality approach to income investing, focusing on companies that pay a sustainable and growing dividend. The team applies a long-term, low-turnover approach where it aims to manage the downside carefully.
As a result, the portfolio has some significant style biases, preferring defensive sectors, large caps, and stocks with above-average return on equity, return on assets, and economic moats. The fund has performed in line with expectations, limiting its maximum drawdowns during turbulent markets while it did reasonably well in rising markets. It comfortably beats its typical rival on a risk-adjusted basis but slightly lags the MSCI World High Dividend Yield Index.
Fidelity Index Japan – Silver
Kenneth Lamont
We think this fund is a strong investment proposition. Its underlying benchmark, the MSCI Japan, is broad and representative and has proved a difficult hurdle for many Japan large-cap managers to clear over the medium to long term. With an ongoing charge of just 0.12%, the ‘W’ share class is the lowest cost index fund in the Japan Large-Cap category. This fee advantage has contributed to a strong risk-adjusted performance since inception. Given its strengths, we can be confident that over a full market cycle this fund will continue to outperform its peers on a risk-adjusted basis.
Upgrades
iShares S&P 500 – Gold
Monika Dutt
We have upgraded this fund from a Bronze to a Gold rating following the fee reduction in April 2017 from 0.40% to 0.07%. The change makes the fund one of the cheapest in its category. With a low fee and a soundly constructed and reasonably representative benchmark, this fund is well positioned to continue its long streak of producing superior risk-adjusted returns relative to its category.
Downgrades
BGF US Basic Value – Neutral
Fatima Khizou
Bart Geer, who had managed this fund since joining Blackrock from Putnam Investments in late 2012, was replaced in March 2017 as a result of the BlackRock’s restructuring of its active equity lineup. Former co-manager Carrie King, who has worked as an analyst on the fund for more than two decades and with every previous listed manager, now manages the fund with Joe Wolfe, a BlackRock employee since 2012 who helped Geer build the quantitative screens he used as part of his process.
The duo continues to use the same investment process, combining quant and fundamental techniques. While the overall approach remains the same, it is not clear how well this new management team will implement it. In addition, we think it will take time for the newly-formed group of analysts in the income and value team to settle and learn how to serve this strategy along with the others in its sphere. The fund therefore earns a Morningstar Analyst Rating of Neutral.
GS India Equity Portfolio – Neutral
Mark Laidlaw
Hiren Dasani was appointed lead portfolio manager in April 2017 following the unexpected departure of former manager Prashant Khemka. We believe this is a sensible appointment, and that the proven investment framework remains intact. However, we have some concerns about Dasani’s additional responsibility co-managing an emerging markets equity strategy, which he expects to face a steep learning curve. Along with Indian equities being a competitive asset class with a number of strong managers, we have downgraded the fund's rating.
Keystone Ord – Neutral
Peter Brunt
Mark Barnett stepped back from the fund’s management at the end of March 2017, leaving James Goldstone as his replacement. Goldstone has worked in the industry for over 15 years, but only the last five have been on the investment side, making him considerably less experienced than his predecessor.
He has managed a UK equity pension fund for the group for the last three years, following a somewhat flexible approach that centres primarily around bottom-up research and follows a total return mind-set. Goldstone will manage this fund in a similar fashion to the pension fund, with a greater focus on dividends.
He will apply some sensible self-imposed limits on portfolio construction, but ultimately it remains a highly flexible mandate. While he has shown promise on the pension fund and benefits from the guidance of an experienced team, we would like to see more evidence that he can add value through more varied market conditions.
Robeco Global Stars Equities – Neutral
Jeffrey Schumacher
The fund's rating was put Under Review after the announcement of a strategy revision and team overhaul in December 2016. The fund, formerly known as Robeco NV, will adapt to the more concentrated investment style of its sibling, the Luxembourg-domiciled Robeco Global Stars Equities Fund. Furthermore, lead manager Mark Glazener and comanager Dirk Hoozemans are no longer at the helm.
The fund is now managed by Jan Keuppens as lead manager and Michiel Plakman as comanager; they are managers at the concentrated Lux-domiciled version. In the last 12 months, the team supporting this strategy has shrunk from 11 to just five, putting pressure on the managers to pick up stock coverage. The significant reduction in the team is a concern, in terms of depth and breadth of coverage and also the execution of the process, and we no longer have conviction in the offering.
