New Ratings
DB Platinum IV Systematic Alpha – Bronze
Matias Möttölä
We have initiated coverage on the DB Platinum IV Systematic Alpha fund with a Morningstar Analyst Rating of Bronze. This fund has been sub-advised since its 2010 inception by Winton group, which is among the strongest systematic asset managers around. In contrast to Winton’s own UCITS fund, where Winton has reduced the weight of macro trend following to 25% recently due to concerns about its effectiveness, here the weight of trend following continues to be at around 50–55%. The style consistency can be a comforting factor to investors as it gives this fund’s past performance more relevance even if it this does not follow Winton’s own thinking. We think investors should follow closely how this strategy evolves and how the competition for assets between the different Winton-related products takes shape.
Winton Diversified UCITS – Bronze
Matias Möttölä
We have initiated coverage on the Winton Diversified UCITS fund with a Morningstar Analyst Rating of Bronze. This fund follows the same strategy as the company’s flagship The Winton Fund, which has recently undergone changes. The weight of trend following has been reduced considerably as Winton believes the style to be less effective than before. To replace momentum-based strategies, Winton has developed non-trend-following signals and invested in research on signals feeding into its long-short equity strategies. Although we have confidence in Winton’s research capabilities, the process change takes the fund to a somewhat uncharted territory. Also lowering our conviction slightly are recent layoffs and turnover in the company’s top management in recent years.
Upgrades
X MSCI EMU ETF 1D (XD5E) – Gold
Kenneth Lamont
Xtrackers MSCI EMU ETF has proved itself to be one of the standout options for investors seeking exposure to eurozone large-cap equities, and we believe it will comfortably outperform its peers over a full market cycle.The fund has an ongoing charge of 0.12%, one of the very lowest among MSCI EMU exchange-traded funds. This fee is also considerably lower than those charged by active peers. This relatively low fee has seen the fund comfortably beat the average surviving Morningstar Category peer on a risk-adjusted basis over three and five years. The fund has also been one of the best-performing MSCI EMU ETFs over the trailing three-year period.
The fund offers broad and representative cap-weighted exposure to eurozone large-cap equities. With around 240 constituents, including a number of mid- and small caps, the MSCI EMU Index stands as a much better proposition for buy-and-hold investors than the more popular but mega-cap-heavy Euro Stoxx 50 Index. Xtrackers is nearing the end of a transition period in which it has made strides toward becoming a stand-alone asset manager. Although the management team remains relatively new as a unit, the calibre of recruits has been high, and the systems that have been implemented represent an upgrade on those they have replaced. For these reasons, this fund has been upgraded to a Morningstar Analyst rating of Gold from Silver.
The Scottish American Investment Company (SCAM) – Bronze
David Holder
Our conviction in the new management lineup continues to grow, resulting in an upgrade to a Morningstar Analyst Rating of Bronze from Neutral. Toby Ross and James Dow are team co-heads, having been at Baillie Gifford since 2006 and 2004, respectively, and having been involved in decisionmaking here since 2013. They have spent all their investment careers at Baillie Gifford and so are immersed in the culture and unique investment approach. We like Baillie Gifford’s approach to managing portfolios based upon fundamentals regardless of benchmark constitution. We rate the parent entity highly for its long-term investment-led approach, low turnover of key staff, and alignment of interests with investors’ through the partnership structure. The team dynamics and adherence to the process, in concert with competitive fees, bode well.
Downgrades
Artisan Global Value – Silver
Bhavik Parekh
Artisan Global Value still has talented management, but a team split introduces uncertainty. Previously, Daniel O’Keefe and David Samra comanaged the Artisan Global Value and Artisan International Value (an EAFE mandate) strategies together for over a decade. Following a split on Oct. 1, 2018, Samra was made the sole lead manager on the International Value strategy and O’Keefe became the sole lead manager of the Artisan Global Value strategy, each running their respective strategies as two distinct entities. O’Keefe continues to be supported by recently promoted comanagers Michael McKinnon and Justin Brady. While McKinnon and Brady have worked with O’Keefe for 10 and nine years, respectively, it will take time to see how they operate together in this new context and adapt to their new roles. We have therefore decided to downgrade the Morningstar Analyst Rating to Silver from Gold.
GAM Star China Equity – Neutral
Germaine Share
We have downgraded GAM Star China Equity’s Morningstar Analyst Rating to Neutral from Silver following the departure of experienced and long-tenured portfolio manager Michael Lai, who was our main source of confidence for the strategy. He will be replaced by Rob Mumford, who joined the firm in December 2018. Mumford brings 25 years of investment experience, most of it from managing Asian long/short strategies without a public track record available.
The analyst team has also been shrinking over the past couple of years, and only two China-dedicated analysts remain. Mumford can leverage three other global emerging markets members, but this is nonetheless a small team. Mumford will continue to use a style-agnostic investment approach which combines bottom-up stock selection and top-down analysis. Unlike Lai, Mumford intends to leverage the broader team for macro insights and introduce a greater benchmark-awareness to the strategy. While these tweaks seem sensible, we believe Lai was key to the successful implementation of the investment process, and we are not sure how it would fare under a new manager. Overall, the strategy is seeing meaningful changes on multiple fronts, which has significantly weakened our conviction in it.
