New Ratings
Amundi ETF CAC 40 - Bronze
Hortense Bioy
Despite its giant-cap bias and stock concentration, the fund enjoys a considerable cost advantage which gives us confidence that it will continue outperforming category peers on a risk-adjusted basis.
Like many single-country indexes in Europe, the CAC 40 is fairly top-heavy, with the top three constituents currently accounting for about one quarter of the index. Nonetheless, at the sector level, the index remains broadly diversified and adequately representative of the France Large-Cap Morningstar Category. The ETF charges an ongoing charge of 0.25%. Although not the cheapest CAC 40 ETF available, the fund still maintains a considerable cost advantage when compared with active peers. This advantage has seen the fund outshine the average fund in the category over three, five, and 10 years on a risk-adjusted basis.
iShares FTSE MIB EUR - Neutral
Hortense Bioy
Because of its stock and sector concentration, and despite its cost advantage relative to active peers, we lack confidence that this fund will beat the average category peer over the long term on a risk-adjusted basis. The FTSE MIB Index is highly concentrated, with the top five holdings accounting for almost half of the portfolio, while financials represent close to 40% of the portfolio. This make-up has resulted in significant underperformance since the financial crisis relative to the average fund in the Italy Equity Morningstar Category. With an ongoing charge of 0.35%, the fund stands as a very low-cost option relative to category peers but is also among the more expensive ETFs tracking the large-cap segment of the Italian stock market. That said, tracking performance has been good. The fund has lagged its benchmark by an amount that is less than its ongoing charge.
iShares SLI® (CH) - Neutral
Hortense Bioy
Despite the high quality of its holdings, we lack confidence that this fund will beat category peers in the long run on a risk-adjusted basis. Thanks to its capping mechanism, the SLI offers greater single stock and sector diversification than the better-known SMI, but remains concentrated: the largest sector, financials, represents about 30% of the portfolio. The fund has underperformed the average offering in the category on a risk-adjusted basis over three and five years. It has also lagged its underlying benchmark by an amount that is slightly above its ongoing charge of 0.35%. That charge is considerably less than the median fee in the category, but higher when compared with ETF peers.
iShares SMI® (CH) - Neutral
Hortense Bioy
Despite the high quality of its holdings, we lack confidence that this highly concentrated fund will beat category peers in the long run on a risk-adjusted basis. The SMI comprises only 20 constituents, with the top three constituents making up about 60% of the index’s value, while healthcare stocks account for 40% of the portfolio. Performance-wise, the fund has failed to impress, lagging the average offering in the category on a risk-adjusted basis over three and five years, although 10- and 15-year category-relative performance looks better. Meanwhile, the fund has lagged its underlying benchmark by an amount that is slightly above its ongoing charge of 0.35%. While 0.35% is considerably less than the median fee in the category, it is higher than ETF peers.
iShares SMIM® (CH) - Neutral
Hortense Bioy
Despite the good quality of its portfolio and its fairly well-diversified composition, we lack confidence that the fund will beat the average fund in the category over the long term on a risk-adjusted basis. Performance-wise, the fund has failed to impress, lagging the average active and passive offering in the category on a risk-adjusted basis over three, five, and 10 years. Meanwhile, the fund has underperformed its underlying benchmark by an amount that is above its ongoing charge of 0.45%. While 0.45% is considerably less than the median fee in the category, it is higher than that charged by passive peers.
JPM Global Bond Opps - Neutral
JPM Global Bond Opportunities (Lux) - Neutral
Carlos Lucar
These funds are managed by JPMorgan’s unconstrained team, comprising an experienced trio in global CIO Bob Michele, international CIO Nicholas Gartside and portfolio manager Iain Stealey. They rely heavily on the full extent of the firm’s fixed income resources including its sector specialists in currencies, rates, credit and securitised debt, and the emerging markets debt teams, especially when it comes to bottom-up security selection. The strategy aims to maximise total return with a 5-10% annual volatility budget. It has achieved solid results over its relatively short history with the funds outperforming their respective Morningstar categories, both in absolute- and risk-adjusted terms. However, this has primarily been driven by their large stake in high-yield debt that has benefited from a generally benign environment for corporate credit. We would like to see the funds perform in a wider variety of market conditions before building our conviction here.
JPM US Select Equity Plus - Silver
Thomas Lancereau
Despite the upcoming retirement from portfolio management of one long-tenured manager, the combination of a strong team, with succession planning built in and a robust process, support our high conviction in this fund. It is a 30/30 extension of the firm’s long-only core large-cap portfolio, drawing on the fundamental research of J.P. Morgan's strong team of more than 25 experienced analysts. Susan Bao will remain lead here, having co-managed the fund since its inception and produced a very compelling performance record.
Kempen (Lux) Euro Credit Plus - Silver
Niels Faassen
Kempen’s euro credit team has been responsible for this fund since its inception in March 2014, which is a relatively short period. But it has successfully managed a similar, more constrained euro credit strategy since May 2008, which bolsters our confidence in the team. Kempen veteran Alain van der Heijden replaced Richard Klijnstra as head of credit in August 2016. The managers aim to add value through a disciplined and proven investment process by taking small, diversified, relative value positions within a limited risk budget. Compared with its sibling fund, Kempen Euro Credit Plus has more leeway and a wider opportunity set. Nevertheless, the fund isn’t stacking up on credit beta but has a clear focus on mitigating risks through diversification. The team has posted impressive results through favourable bottom-up selection and credit beta management complemented with skillfully implemented relative value and carry trades. We award the fund a Morningstar Analyst Rating of Silver, in line with its more constrained Silver-rated sibling Kempen Euro Credit.
Lyxor CAC 40 ETF - Bronze
Hortense Bioy
Despite its giant-cap bias and stock concentration, the fund enjoys a considerable cost advantage which gives us confidence that it will continue outperforming category peers on a risk-adjusted basis. Like many single-country indexes in Europe, the CAC 40 is fairly top-heavy, with the top three constituents currently accounting for about one fourth of the index. Nonetheless, at the sector level, the index remains broadly diversified and adequately representative of the France Large-Cap Morningstar Category. The ETF charges an ongoing charge of 0.25%. Although not the cheapest CAC 40 ETF available, the fund still maintains a considerable cost advantage when compared with active peers. This advantage has seen the fund outshine the average fund in the category over three, five, and 10 years on a risk-adjusted basis. Moreover, since the ETF was converted to physical replication in July 2014, tracking performance has improved.
Lyxor FTSE MIB ETF - Neutral
Hortense Bioy
Because of its stock and sector concentration, and despite its cost advantage relative to active peers, we lack confidence that the fund will beat the average fund in the category over the long term on a risk-adjusted basis. The FTSE MIB Index is highly concentrated, with the top five holdings accounting for almost half of the portfolio, while financials represent close to 40% of the portfolio. This make-up has resulted in significant underperformance since the financial crisis relative to the average fund in the Italy Equity Morningstar Category. With an ongoing charge of 0.35%, the Lyxor FTSE MIB (Dist) ETF stands as a very low-cost option relative to category peers but is also among the more expensive ETFs tracking the large-cap segment of the Italian stock market. That said, tracking performance has been good. The fund has lagged its benchmark by an amount that is less than its ongoing charge.
UBS ETF (CH) SMI® - Neutral
Hortense Bioy
Despite the high quality of its holdings, we lack confidence that this highly concentrated fund will beat category peers in the long run on a risk-adjusted basis. The SMI comprises only 20 constituents, with the top three constituents making up about 60% of the index’s value, while healthcare stocks account for 40% of the portfolio. Performance-wise, the fund has failed to impress, lagging the average offering in the category on a risk-adjusted basis over three and five years, although 10- and 15-year category-relative performance looks relatively better. The fund has lagged its underlying benchmark by an amount that is less than its ongoing charge of 0.21%. It is also competitively priced compared with other passive options in the category, although there are cheaper alternatives on offer.
Downgrades
Fidelity European Smaller Companies - Bronze
Muna Abu-Habsa
Colin Stone has managed this fund since its launch in 1995 and has built one of the longest track records in this category. Supporting Stone are two other portfolio managers, each running a sleeve within the fund. This has left the managers having to pick up small victories in individual positions, with small position sizes making it challenging to add significant alpha. Indeed, the sizeable asset base requires a portfolio focusing on smaller companies to have a large number of holdings, and we note that it has contributed to the increase in the portfolio's average market cap over the years; the fund's AUM and number of holdings are amongst the highest in its Morningstar category. Although we continue to think very well of Stone and give him credit for delivering competitive results for investors here over the last twenty years, we believe a Bronze rating provides a better reflection of our confidence in the fund's relative merits.
