New Ratings
iShares Emerging Markets Government Bond Index – Silver
Jose Garcia-Zarate
Investors seeking exposure to the market of USD-denominated emerging market government bonds will be well served with this competitively-priced fund. Active bets on emerging-markets debt remain fraught with risks and volatility, whereas a geographical broad-based and low-cost passive approach helps balance these out over the long-term. This index fund tracks an index that caps the weight of countries with the larger debt stock to avoid single country concentration.
Schroder ISF Global Multi-Asset Income – Bronze
Matias Möttöla
Lead manager Aymeric Forest has access to a wide range of quality resources within Schroders to manage this multi-asset fund which aims to produce a 5% yield before fees with a risk similar to portfolio with 30% in equities and 70% in fixed-income. Among these resources are Schroder’s quantitative QEP equity team and a host of specialist teams within fixed income. While we find the investment process to be flexible enough to enable the fund to achieve its goals, we think the process still lacks an edge, and we have some concerns about downside protection. We have initiated coverage of the fund with an Analyst Rating of Bronze.
Vanguard US Government Bond Index – Silver
Jose Garcia-Zarate
This fund is an above-average investment proposition through which to gain access to one of the most liquid government markets in the world. The structure of the US Treasury market is such that the opportunity to add meaningful value over a standard benchmark is limited to duration calls that might wash out over time. The fund’s ongoing charge looks a bit toppy, but this does not undermine the merits of a passive investment approach for a classic buy-and-hold market exposure such as this one.
Upgrades
Fidelity European Growth – Bronze
Mathieu Caquineau
Matt Siddle took the reins of Fidelity European Growth in July 2012. He has followed the typical investment career at Fidelity, starting as an analyst in 1999 and becoming a fund manager after a few years. Today, Siddle has the support of a deeply resourced analyst team, and we think he has made good use of its input over the years. We’ve also become increasingly confident that he can handle the fund’s large asset base. His low-turnover approach is helpful in that regard. As a result, we have increased the fund’s Morningstar Analyst Rating to Bronze from Neutral.
iShares MSCI Europe ETF EUR Dist – Silver
Dimitar Boyadzhiev
We view this fund as a strong option to add core exposure to continental Europe including the UK. With around 450 stocks, the MSCI Europe Index covers approximately 85% of the European investable market and has proved to be a very difficult opponent for the average peer to beat. It is well-representative of the Morningstar Europe Large cap category with a modest orientation towards larger companies. At 0.35%, the fund is cheap compared with other European offerings.
Legg Mason Western Asset Macro Opportunities Bond – Bronze
Ashis Dash
The fund is led by a seasoned investor in Western’s CIO, Kenneth Leech. He is backed by Western’s head of derivatives, Prashant Chandran. The duo leverages the firm’s strong and experienced sector teams globally for idea generation with the fund representing the team’s best ideas expressed through a high-conviction portfolio. The fund can take long/short positions across global credit, rates, and currency markets, has a wide duration range of negative five to 10 years, and makes liberal use of derivatives.
Our positive view here is driven by the team-based approach and the managers’ deft execution of this flexible yet aggressive strategy that has resulted in strong risk-adjusted performance, versus its Morningstar Category, even with its higher volatility. While we criticize the high costs charged to investors here, the fund has enough strengths to earn an upgrade in its Morningstar Analyst Rating to Bronze.
Robeco High Yield Bonds – Gold
Niels Faassen
Managers Sander Bus and Roeland Moraal have successfully applied a prudent and time-tested approach at this fund. Strong bottom-up selection is complemented by modest but skillful credit beta management, all at below-average fees that reflect the strong stewardship of the parent company. The fund has outperformed peers and its index consistently, landing in the top decile of its Morningstar Category over the trailing three, five, and 10 years through September 2017. This success has not gone unnoticed by investors, and the assets under management of Robeco's high-yield team have grown to nearly EUR 9.5 billion. We are reassured that Robeco, a strong steward of investors’ capital, is keeping a careful eye on the strategy’s capacity and liquidity and that it is dedicated to protecting existing shareholders. All in all, this fund is one of our favourites in the category.
Vanguard FTSE All-World High Dividend Yield ETF – Bronze
Dimitar Boyadzhiev
This dividend fund is broadly-diversified, cheap and has historically offered above-average dividend yield. While it doesn't screen its holdings for profitability or their dividend payment sustainability, the fund's broad market-cap-weighted portfolio effectively diversifies risk. As such, we are confident that the fund is a sensible choice for long-term investors, and we have therefore upgraded it to Bronze.
XTrackers MSCI Europe Index ETF – Silver
Dimitar Boyadzhiev
We view this fund as a strong option to add core exposure to continental Europe including the UK. With around 450 stocks, the MSCI Europe Index covers approximately 85% of the European investable market and has proved to be a very difficult opponent for the average peer to beat. It is well-representative of the Morningstar Europe Large cap category with a modest orientation towards larger companies. At 0.25%, the fund is cheap compared with other European offerings.
Downgrades
BGF World Energy – Neutral
Fatima Khizou
BGF World Energy is now led by Alastair Bishop who became sole named manager in April 2017, when long-time co-manager Poppy Allonby decided to relinquish her portfolio management responsibilities. Bishop joined the team as an energy analyst in 2010 and was appointed co-manager in November 2015. Since September 2017, he has been working alongside the newly hired co-manager Mark Hume who joined the group from First State after a seven-year stint within the global resources team. The duo is supported by a team of two dedicated analysts who have been hired in the last two years.
Though we acknowledge there are more resources in place now with significant knowledge of the energy sector, neither Bishop nor Hume has much of a track record as a portfolio manager and the overall team has not worked together for long on this strategy. Additionally, we note that the fund’s ongoing charge on its “clean” share class relative to those on other energy equity funds is extremely high. These factors cause an element of uncertainty with regard to the future potential of this fund to outperform and as a result, the fund’s Morningstar Analyst Rating is downgraded to Neutral from Bronze.
