New Ratings
DNCA European Select Equity – Bronze
Mathieu Caquineau
NGAM DNCA European Select Equity benefits from an experienced skipper. While the fund was only launched in May 2017, Isaac Chebar has almost two decades of experience. He has successfully managed the pan-European version of the strategy, DNCA Value Europe, which has a Morningstar Analyst Rating of Bronze, since he joined DNCA in 2007.
The team around him is small but has been reinforced in the past four years with the hiring of two senior fund managers and two analysts. The approach is selective and targets undervalued stocks. Chebar is a cautious investor who tends to stay away from weak balance sheets and also uses cash tactically when opportunities are scarce. Akin to its pan-European version, we expect this strategy to deliver competitive long-term returns while offering downside protection and lower volatility. The fund earns a Morningstar Analyst Rating of Bronze.
Kempen (Lux) Global Small-Cap – Bronze
Ronald Van Genderen
This relatively new global small-cap fund has several characteristics that we like, especially the solid process, which has proved to be effective over the past three years. The process includes a simple but effective screening, most notably on quality and valuation. After a quick scan on the best ideas, the team performs in-depth analysis in which company contacts play an important role.
Since inception, this has led to a strong outperformance for the fund over its benchmark and category average, which was driven in large part by strong stock-selection results. We like the team structure, with each member carrying sector responsibilities and a team approach in decision-making, but we also acknowledge that they lack experience in a global context. We initiate coverage on this fund with a Morningstar Analyst Rating of Bronze.
SLI MyFolio Market Range – Bronze
Randal Goldsmith
Following a Morningstar Analyst Ratings Committee meeting we have awarded Analyst Ratings of Bronze to each of the funds in SLI’s MyFolio Market range of five risk targeted funds. Launched almost eight years ago, MyFolio was among the first of the risk targeted fund offerings and has been managed consistently with its risk objectives throughout.
It has multiple product ranges that each apply its successful risk targeting approach. We have begun coverage with the Market range which is priced very competitively, making use of index funds to contain costs, while offering active asset allocation from one of the best resourced multi-asset teams in the UK.
Downgrades
BGF World Mining A2 – Neutral
Fatima Khizou
Evy Hambro has been at the helm of this strategy since March 1997, making him one of the longest-tenured managers in the sector. The fund follows an investment approach that incorporates detailed commodity assessment and company analysis with the aim of generating steady outperformance in a risk-aware manner.
Hambro has consistently applied this approach, and, while such a steadfast commitment is pleasing to see, its overall implementation has not only seen the fund lose more than the index in tough periods for mining equities but also add little value in more positive environments for the sector. A combination of under-and-overestimations of commodity prices by the team, and stock-specific issues are reasons behind underperformance versus its index over the short, medium, and long term.
This outcome has lowered our overall conviction in this fund, and as a result we have downgraded the fund’s Morningstar Analyst Rating to Neutral from Silver.
BlackRock World Mining Trust (BRWM) – Neutral
Fatima Khizou
Evy Hambro has been at the helm of this trust since September 2000 making him one of the longest-tenured managers in the sector. The trust follows an investment approach that incorporates detailed commodity assessment and company analysis with the aim of generating steady outperformance in a risk-aware manner.
Hambro has consistently applied this approach, and, while such a steadfast commitment is pleasing to see, its overall implementation has seen the trust lose more than the index in tough periods for mining equities. Our expectations of the quality bias haven’t therefore materialised in the form of providing downside protection. A combination of under-and-overestimations of commodity prices by the team, and stock-specific issues are reasons behind the medium and long-term underperformance versus its index.
This outcome has lowered our overall conviction in this trust, and as a result we have downgraded its Morningstar Analyst Rating to Neutral from Silver.
M&G Asian – Neutral
Simon Dorricott
The experienced Matthew Vaight is stepping back from this fund and leaving the group by the end of 2018. He will be replaced by Alastair Bruce. Bruce comes across as an enthusiastic analyst and intends to continue to follow the existing investment approach as the new manager. That said, he will clearly be the sole decision-maker on this fund, and his own views will determine both stock selection and portfolio construction.
He has just three years' experience in emerging markets and does not have portfolio management experience. As a result of the new manager’s lack of experience relative to peers, the fund’s Morningstar Analyst Rating has been moved to Neutral.
M&G Global Emerging Markets – Neutral
Simon Dorricott
The experienced Matthew Vaight is stepping back from this fund and leaving the group by the end of 2018. He will be replaced by Michael Bourke. The new manager has some portfolio management experience, and in running this fund he intends to continue to follow the investment approach.
However, his experience of running emerging-markets funds is limited, and, despite following the existing investment philosophy, he will clearly be the sole decision-maker on this fund and his own views will determine both stock selection and portfolio construction. This provides the potential for significantly different future outcomes for this fund. As a result, we have reduced the fund’s Morningstar Analyst Rating to Neutral while we wait for the new manager to establish himself.
BGF Euro-Markets – Bronze
Jeffrey Schumacher
Andreas Zoellinger and Alice Gaskell have formed a successful duo since Zoellinger joined her as comanager in November 2007 on BGF Euro-Markets. In 2018, they won Morningstar’s Fund Manager of the Year Award for European equities for their work on this strategy and European equity income.
As of June 2018, the strategies have been solely managed by Zoellinger as Gaskell decided to leave BlackRock after 24 years to take a break from the industry. Her departure is a significant loss for BlackRock’s 21- strong European equity team and further destabilises a group that had seen multiple changes since 2016 as five other experienced portfolio managers and analysts left. Consequently, some people rotated among the research pods and new, generally less experienced successors were hired.
While we still have a high conviction in Zoellinger’s ability to run this strategy to good effect and the team has ample resources, the departure of Gaskell, coupled with other recent team changes, gives us pause. For that reason, and until we see greater stability, we believe a Morningstar Analyst Rating of Bronze provides a better reflection of the fund’s relative merits than its previous Silver rating.
BGF European Equity Income – Bronze
BlackRock Continental European Income – Bronze
Jeffrey Schumacher
Andreas Zoellinger and Alice Gaskell have formed a successful duo on these funds for more than seven years. In 2018, they won Morningstar’s Fund Manager of the Year Award for European equities for their work on this strategy and eurozone equities.
As of June 2018, the strategies have been solely managed by Zoellinger as Gaskell decided to leave BlackRock after 24 years to take a break from the industry. Her departure is a significant loss for BlackRock’s 21-strong European equity team and further destabilises a group that had seen multiple changes since 2016 as five other experienced portfolio managers and analysts left. Consequently, some people rotated among the research pods and new, generally less experienced successors were hired.
While we still have a high conviction in Zoellinger’s ability to run this strategy to good effect and the team has ample resources, the departure of Gaskell, coupled with other recent team changes, gives us pause. Until we see greater stability, we believe a Bronze rating is a good reflection of the fund’s relative merits.
Re-Affirmed Rating
Threadneedle European High Yield Bond – Bronze
Ashis Dash
Threadneedle European High Yield Bond and its sibling Threadneedle High Yield Bond are managed almost identically by Columbia Threadneedle’s European high-yield team, led by Barrie Whitman. He worked closely with portfolio managers Michael Poole and David Backhouse, with Poole serving as the lead on Threadneedle European High Yield Bond.
After Poole’s departure in June 2018, Whitman and Backhouse will be managing that fund until new manager Roman Gaiser joins over the summer. This will be Gaiser’s second stint at the fund, and we are encouraged by his previous results between 2005 and 2011. Moreover, the team doesn’t expect any significant changes to the fund’s investment approach under Gaiser. Whitman and Backhouse also provide continuity. We reinstate the fund’s Morningstar Analyst Rating of Bronze.
