Aberforth UK Small Companies – Bronze
Samuel Meakin
The fund follows a value investing style, and this approach marks it out versus UK small-cap peers, many of which are growth-oriented. The fund’s managers have stuck consistently to their approach, even through periods of rocky performance. We acknowledge that holding on to challenged investments when seeking to unlock long-term value comes with the territory with value investing, but in some cases we believe this has been done despite weakening business fundamentals. As a result, our conviction in the investment process has slightly lessened, and we believe a Morningstar Analyst Rating of Bronze more closely reflects our level of conviction in the relative merits of the fund.
Aberforth Smaller Companies Ord – Bronze
Samuel Meakin
The investment trust follows a value investing style, and this approach marks it out versus UK small-cap peers, many of which are growth-orientated. The trust’s managers have stuck consistently to their approach, even through periods of rocky performance. We acknowledge that holding on to challenged investments when seeking to unlock long-term value comes with the territory with value investing, but in some cases we believe this has been done despite weakening business fundamentals. As a result, our conviction in the investment process has slightly lessened, and we believe a Morningstar Analyst Rating of Bronze more closely reflects our level of conviction in the relative merits of the trust.
City of London Ord – Silver
David Holder
City of London offers investors a combination of exceptionally experienced and stable management, consistent process, and very low fees. The investment focus is primarily on dividend generation expressed largely through FTSE 100 companies, which results in a portfolio with low active share. Tracking error is also relatively low. In themselves, these aren’t necessarily issues, but upon our most recent review across our rated universe, we feel it potentially limits the scope of outperformance, thereby marginally diminishing our level of conviction. In recognition of this, we are reducing the Morningstar Analyst Rating to Silver from Gold, still drawing comfort that this is a strong offering.
Moved from Under Review
Fidelity Strategic Bond – Bronze
Louise Babin
We have assigned a Morningstar Analyst Rating of Bronze to Fidelity Strategic Bond. The fund was previously rated Silver and had been placed Under Review following the news of lead manager Ian Spreadbury’s retirement at the end of 2018. In our view, Spreadbury’s departure is a significant loss, as his two comanagers have far less relevant experience in managing flexible fixed-income mandates. The fund’s investment process, however, remains unchanged. The portfolio’s starting point is a long-term strategic asset allocation of 60% to investment-grade credit, 20% to high-yield, and 20% to government bonds. This strategy had built a strong track record under Spreadbury’s watch, and comanagers Tim Foster and Claudio Ferrarese must now build their own track record at the fund’s helm. While we view Spreadbury’s extensive experience as a significant loss for this team, the strength of the investment process should help overcome this weakness.
Fidelity Flexible Bond – Bronze
Louise Babin
We have assigned a Morningstar Analyst Rating of Bronze to Fidelity Flexible Bond. The fund was previously rated Silver and had been placed Under Review following the news of lead manager Ian Spreadbury’s retirement at the end of 2018. In our view, Spreadbury’s departure is a significant loss, as his two comanagers have far less relevant experience in managing flexible fixed-income mandates. The fund’s investment process, however, remains unchanged. The portfolio’s starting point is a long-term strategic asset allocation of 60% to investment-grade credit, 20% to high-yield, and 20% to government bonds. This strategy had built a strong track record under Spreadbury’s watch, and comanagers Tim Foster and Claudio Ferrarese must now build their own track record at the fund’s helm. While we view Spreadbury’s extensive experience as a significant loss for this team, the strength of the investment process should help overcome this weakness.
Fidelity MoneyBuilder Income – Silver
Louise Babin
We have assigned a Morningstar Analyst Rating of Silver to Fidelity Moneybuilder Income. The fund was previously rated Gold and had been placed Under Review following the news of lead manager Ian Spreadbury’s retirement at the end of 2018. Sajiv Vaid provides an experienced and considerate pair of hands to take over management of the fund from Spreadbury when he retires. Vaid will be joined by global corporate-bond colleague Kris Atkinson from Jan. 1, 2019, as comanager on the fund. However, Atkinson has considerable portfolio management responsibilities of his own and has only been in a management role since 2013. The fund’s strategy remains bottom-up-driven, with security selection and sector positioning as the key alpha drivers. Overall, we still think highly of this team and process, though the significant team changes afoot somewhat reduce our degree of conviction.
Fidelity MoneyBuilder Balanced – Neutral
Jonathan Miller
Fidelity MoneyBuilder Balanced is split into two parts: the 65% equity sleeve is managed by Michael Clark, while Sajiv Vaid will take over the 35% bond element from Ian Spreadbury, who will retire at the end of the year. This recent announcement saw the fund placed under review. Vaid’s focus will be on UK government bonds as a diversifier from equity risk. The managers work independently but meet monthly to discuss views and overall positioning. Simplicity and clarity are some of the benefits here, but there’s little deviation from the strategic asset allocation. It’s also difficult for active managers to add value in gilts, an area that Vaid hasn’t been dedicated to. Bringing these together lowers our conviction for long-term outperformance. The fund therefore earns a Morningstar Analyst Rating of Neutral, having previously been rated Bronze.
