New Ratings
Allianz Structured Return – Bronze
Francesco Paganelli
We have initiated coverage of Allianz Structured Return with a Morningstar Analyst Rating of Bronze. The fund follows the same strategy, albeit with different implementation rules, as the US-domiciled AllianzGI Structured Return (AZIIX). We think the fund is a solid option-writing offering that stands out in the liquid alternative space. The fund targets an absolute return of 5% above the EONIA rate, or Euro Overnight Index Average.
It benefits from a strong and stable team of four managers and four analysts. Lead manager Greg Tournant joined Allianz in 2002, started the structured products group in 2005, and boasts over 20 years of relevant options-trading experience. The process is based on three options-based tactics that combine systematic and discretionary elements. This fund’s performance-based fee structure has room for improvement but helps to align the managers’ interests with those of investors, thus supporting our overall positive view on the strategy.
M&G Episode Income – Neutral
Francesco Paganelli
We have initiated coverage of M&G Episode Income with a Morningstar Analyst Rating of Neutral. We think the fund has some merits, but the risks inherent in the approach give us pause at this point. Steven Andrew has been the fund’s lead portfolio manager since inception. He is part of M&G’s stable and experienced macro and multi-asset team led by David Fishwick. The strategy aims to grow income distribution over time while delivering 2% to 4% capital growth with volatility of 4% to 10% over rolling three-year periods. Andrew has broad discretion in terms of implementation. He adopts a top-down, value-oriented process.
This portfolio tends to sport strong country- or sector-level bets; the manager’s preference for out-of-favour areas of the market implies the fund should benefit from mean-reversion trends in asset prices, but it also often translates into higher volatility. As a result, the fund’s risk-adjusted performance so far is broadly in line with a pound-sterling-hedged 50/50 composite benchmark composed of the MSCI World and Bloomberg Barclays Global Aggregate indexes. Its lower-than-average fees provide a small advantage, but at this point, we find better opportunities elsewhere in this category.
PIMCO USD Short Mat Source ETF – Gold
Mara Dobrescu
PIMCO US Dollar Short Maturity Source UCITS ETF (MINT) benefits from the same high-calibre team and resources as its open-end sibling PIMCO GIS US Short-Term Bond, as well as a similarly strong, albeit more constrained, process focused on capital preservation. The fund is managed by Jerome Schneider, who was named the 2015 Morningstar Fixed Income Fund Manager of the Year. The fund’s cheap fees add to its appeal and boost its Morningstar Analyst Rating to Gold.
Downgrades
PGIM Jennison US Growth – Silver
Fatima Khizou
The approach behind PGIM Jennison US Growth can lead the team to select volatile companies, and, while it has produced excellent absolute returns over the long haul, the risk-adjusted results have deteriorated. Additionally, we believe that the talent of the investment team does not extend to all sectors, thereby limiting the fund’s fortune to its go-to technology and consumer sectors. We have therefore downgraded the fund’s Morningstar Analyst Rating to Silver from Gold, reflecting our lower overall level of conviction.
