Jonathan Miller: Welcome to the Morningstar Manager check up for 3 fund updates from our research team.
Loomis Sayles US Equity Leaders is managed by Aziz Hamzaogullari who’s been using the same process with largely the same team since 2006, joining Loomis Sayles with them in 2010. He adopts a long-term approach through a proprietary bottom-up research framework. This is focused on investing in high-quality businesses with sustainable competitive advantages and profitable growth when they trade at a significant discount to intrinsic value.
The outcome is a high-conviction, concentrated portfolio of 30-40 stocks. The fund’s sector and stock-positioning can differ significantly from the composition of the benchmark and the contrarian nature of the fund means there is little overlap with the index.
However, this hasn’t historically resulted in higher volatility compared with peers, as the manager achieves sufficient diversification by compiling a portfolio of companies with different business drivers. All told, the manager’s long-term, disciplined approach has been consistently applied over years and has provided investors with a favourable risk/return profile. The fund therefore retains its Morningstar Analyst Rating of Silver.
Fidelity Asian Smaller Companies has been run by Nitin Bajaj since September 2013, and he invests at least 70% of the fund in Asia ex Japan small caps. Bajaj’s style is truly benchmark-agnostic and is only focused on stock specifics. Small caps are very under-researched in Asia and Bajaj makes good use of the vast Fidelity analyst resources, which includes five dedicated small-cap analysts in the region.
At heart, his process involves identifying well-run companies in attractive industries at appealing valuations. A principal criteria here is preservation of capital, so Bajaj will focus on buying businesses where he feels there is a significant margin of safety in the price. The investment approach is disciplined and differentiated within the peer group. Whilst it’s still relatively early in Bajaj’s tenure, we feel that investors are in the hands of an adept up and coming manager, and we reiterate our Morningstar Analyst Rating of Bronze.
Invesco Pan European Structured Equity is built on a quantitative approach that aims to select the most attractive low-volatility stocks in the index. The quant indicators used are fundamentally driven and can be divided into four categories: earnings revisions, relative strength, management behaviour, and valuation.
Fund managers Michael Fraikin and Thorsten Paarmann are long-standing members of the 40-strong global quant team and have been key to honing this approach. They rebalance the portfolio twice a month and with a lower beta than the market, the fund will tend to lag sharply rising markets.
Since the approach was implemented in September 2006, it’s been among the highest-returning and least volatile in its peer group. Given the team approach, extensive resources available and continued execution of the process we confirm our Morningstar Analyst Rating of Silver.
