New Ratings
DBXT FTSE E/N De Europe Real Estate ETF – Bronze
Kenneth Lamont
Due to its low-cost broad beta exposure to the sector, this fund is a reliable option for investors seeking exposure to the European REITs and listed real estate equity market. The fund tracks an index that is highly representative of the available opportunity set in terms of size, sector and geography. It cut its ongoing charge from 0.40% to 0.33% in March 2017. Already significantly cheaper than the European indirect property category average of 1.05%, the lower fee makes it one of the cheapest ETFs available. Looking ahead, the cut in the ongoing charge should provide a boost to performance.
iShares European Property Yield ETF – Neutral
Kenneth Lamont
This ETF provides low-cost passive exposure to continental European REITs and listed real estate companies that have been screened by their one-year forecast dividend yield. Despite the word "European" in its name, it excludes UK-listed equities, which can account for around a third of the underlying market. Fund constituents must have a forecast dividend yield of at least 2%, which arguably represents a low hurdle given the obligation for global REITs to maintain high dividend payout ratios. In fact, at the time of rating, the index holds 59 of the 65 securities included in the non-yield-screened parent benchmark. This ETF has ranked in the top quartile against its Morningstar category peers, both active and passive, on a risk-adjusted basis over three, five and 10 years. However, the fund’s exclusion of the UK means that its relative performance largely depends on the fortunes of that market.
iShares Global Infrastructure ETF – Bronze
Kenneth Lamont
We have initiated coverage of this fund with a Bronze rating on the basis that it provides broad representative, low-cost beta exposure to global listed infrastructure. We look favourably on the change of index to the FTSE Global Core Infrastructure in March 2017, which more than doubles the breadth of fund holdings; 220 vs 100. The fund now offers the most comprehensive passive exposure to the segment. The fund’s historical category-relative performance – based on its previous benchmark – has been mixed. However, the new index has outperformed the category average over three, five and 10 years. Even accounting for the impact of fund fees, we are confident that the fund is now in better stead to deliver returns above the category average over the long term. With an ongoing charge of 0.65%, the fund is one of the cheapest in its category, which includes both active and passive funds, and comparable with other passive options.
iShares Global Water ETF – Bronze
Kenneth Lamont
By providing low-cost, representative passive exposure, this ETF represents a reliable option for investors in the global water sector. The fund has performed strongly, appearing in the top quartile when ranked against surviving category peers on a risk-adjusted basis over 10 years. With 50 holdings, the fund is the broadest and most representative index fund in the Morningstar Water Equity Sector. This fund’s expense ratio of 0.65% is lower than the fund sector median fee and similar to the only other passive option within the category.
Upgrades
DBXT S&P 500 ETF – Gold
Monika Dutt
We see this fund as a strong investment proposition. A low fee relative to its active peers and a soundly constructed and reasonably representative benchmark leave this ETF well-positioned to continue its long streak of producing superior risk-adjusted returns relative to its peers over the long haul. As such, we have upgraded this fund to a Morningstar Analyst Rating of Gold.
Downgrades
Schroder ISF Asian Opportunities – Silver
Germaine Share
We have downgraded Schroder ISF Asian Opportunities to a Morningstar Analyst Rating of Silver. Robin Parbrook is relinquishing his role as the lead portfolio manager of the fund following his decision to return to Schroders in London. We hold Parbrook in the utmost regard, and he has an unparalleled track record on Schroder ISF Asian Total Return, which has a Morningstar Analyst Rating of Gold.
His successor is Toby Hudson, an experienced and proven outperformer who has worked closely with Parbrook on this strategy over the years. While we consider him an apt replacement, he has big shoes to fill, and we need some time to see how he fares without the immediate support of Parbrook. Hudson applies the same rigorous investment process as Parbrook, which focuses quality and growth, and he has gained much success on his Schroder Asian Growth and Schroder ISF Hong Kong Equity funds.
Nonetheless, the fund continues to gain assets and Hudson does not have a public track record managing a strategy of this size of $4.8 billion as of 30 June 2017. While we continue to like many aspects of the fund, we would like some time to gain comfort around this transition.
