New Ratings
Stewart Investors Worldwide Leaders Sustainability – Gold
Ronald Van Genderen
The fund stands out because of its high-integrity research approach and top-notch management team, landing it among our top global equity ideas. The strategy’s strength lies in its teamwork-based approach. Sashi Reddy has been the lead portfolio manager here only since mid-2016 but is experienced and is backed by a strong supporting cast in the Sustainable Funds Group of Stewart Investors, including highly experienced comanager David Gait. Akin to the strategy’s name, the crew looks for high-quality companies with solid financials that are steadily growing earnings from sustainable business models. We initiate our coverage on the Ireland-domiciled vehicle of the strategy with a Morningstar Analyst Rating of Gold for the cheaper clean share classes, while the more expensive share class is rated Silver.
Upgrades
Amundi IS JPX-Nikkei 400 ETF – Silver from Bronze
Kenneth Lamont
We hold a favourable opinion of this low-cost exchange-traded fund, which employs light quality filters over broad and diversified beta exposure to a market in which passive funds have performed well. The JPX-Nikkei 400 Index screens its 400 constituents by several factors, including return on equity, operating profit, and corporate governance credentials. The selected stocks are then weighted by market capitalisation, with a 1.5% cap applied on individual names. The fund shares many characteristics (similar sector weightings and size tilts, for example) with purely cap-weighted peers. This is one of the key strengths of the strategy as passive funds have proved difficult to beat over long periods in the Japanese large-cap equity Morningstar Category. With an ongoing charge of only 0.18%, the fund is one of the cheapest in the category. The hefty fee gap between this fund and that charged by peers can be expected to provide a dependable tailwind going forward. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Silver from Bronze.
Fidelity Index Japan – Silver from Bronze
Kenneth Lamont
Fidelity Index Japan represents a top option for investors looking to gain access to the Japanese large cap equity Morningstar Category. Our conviction is grounded in the fund’s low management fee and representative beta exposure, offered in a market in which passive investments have performed well over long periods. The market-cap-weighted MSCI Japan Index tracks the performance of around 320 large- and mid-cap Japanese companies, which approximate 85% of the total market value. With an ongoing charge of 0.10%, the fund maintains a considerable cost advantage compared with active and passive peers. This low fee has contributed toward solid performance, with the fund outperforming its surviving category peers on a risk-adjusted basis during the trailing three- and five-year periods. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Silver from Bronze.
Lyxor JPX Nikkei 400 (DR) ETF – Silver from Bronze
Kenneth Lamont
We hold a favourable opinion of this low-cost exchange-traded fund, which employs light quality filters over broad and diversified beta exposure to a market in which passive funds have performed well. The JPX-Nikkei 400 Index screens its 400 constituents by several factors, including return on equity, operating profit, and corporate governance credentials. The selected stocks are then weighted by market capitalisation, with a 1.5% cap applied on individual names. The fund shares many characteristics (similar sector weightings and size tilts, for example) with purely cap-weighted peers. This is one of the key strengths of the strategy as passive funds have proved difficult to beat over long periods in the Japanese large-cap equity Morningstar Category. With an ongoing charge of only 0.25%, the fund is one of the cheapest in the category. The hefty fee gap between this fund and that charged by peers can be expected to provide a dependable tailwind going forward. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Silver from Bronze.
Lyxor Japan Topix DR ETF – Gold from Silver
Kenneth Lamont
Lyxor Japan (TOPIX) ETF offers the broadest and most comprehensive beta exposure at a low cost in a Morningstar Category where passive funds have performed strongly. Because of its sprawling coverage, the Tokyo Stock Price Index offers the most representative cap-weighted exposure to Japanese large cap equities. Including around 2,150 Japanese companies, it approximates total market exposure. With an ongoing charge of 0.45%, the fund maintains a considerable cost advantage when compared with active peers. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Gold from Silver.
Stewart Investors Worldwide Sustainability – Gold from Silver
Ronald Van Genderen
Stewart Investors Worldwide Sustainability boasts an impressive investment team and topnotch research approach, landing it among our top global equity ideas. This strategy’s strength lies in its teamwork-based approach. Nick Edgerton is lead portfolio manager here but is backed by a strong supporting cast in the Sustainable Funds Group of Stewart Investors, including highly experienced comanager David Gait. The group’s approach is straightforward and distinct. Akin to the strategy’s name, the crew looks for high-quality companies with solid financials that are steadily growing earnings from sustainable business models. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the Morningstar Analyst Rating for the strategy’s cheaper share classes, including the previously covered B Acc GBP share class, are upgraded to Gold from Silver. More-expensive share classes maintain a Silver rating.
iShares MSCI Japan ETF USD Dist – Bronze from Neutral
Kenneth Lamont
This fund represents a solid option for investors looking to gain access to the Japanese large-cap equity Morningstar Category. Our positive view is grounded in the fund’s low cost versus active peers, and the representative beta exposure offered in a market in which passive investments have performed well over long periods. The market-cap-weighted MSCI Japan Index tracks the performance of around 320 large- and mid-cap Japanese companies, which approximate 85% of the total market value. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Bronze from Neutral.
Vanguard Japan Stock Index – Silver from Bronze
Kenneth Lamont
This fund represents a strong investment proposition for those looking to gain access to the Japanese large-cap equity market. Our conviction is grounded on the fund’s low management fee and representative beta exposure offered in a market in which passive investments have performed well over long periods. The market-cap-weighted MSCI Japan Index tracks the performance of around 320 large- and mid-cap Japanese companies, which approximate 85% of the total market value. With an ongoing charge of 0.16%, the fund maintains a considerable cost advantage when compared with active peers. This low fee has contributed towards a strong performance, with the fund comfortably outperforming its surviving category peers on a risk-adjusted basis during the trailing three-, five-, and 10-year periods. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Silver from Bronze.
Downgrades
L&G Sterling Corporate Bond Index – Negative from Neutral
Jose Garcia Zarate
L&G Sterling Corporate Bond Index tracks an index that excludes the BBB-rated segment of the sterling-denominated non-gilt investment grade rated bond universe. This means ignoring about one-third of the investable market and results in the strategy being underweighted in precisely the corporate bond exposure that its name implies to offer, thus limiting the yield capture potential. In the context of our improved ratings framework, which focuses on expected net returns generation relative to the average category peer, the Morningstar Analyst Rating for this strategy has been downgraded from Neutral to Negative for all its share classes.
iShares FTSE 250 ETF – Negative from Neutral
Dimitar Boyadzhiev
The UK mid-cap space is an area in which stock-pickers excel and the few passive funds available in this category do not come across as interesting investment propositions. The iShares FTSE 250 ETF is further hampered by its comparatively high fee. In the context of our improved ratings framework with its stronger focus on expected net returns generation, the Morningstar Analyst Rating for this strategy is downgraded to Negative from Neutral.
Note: Under the enhanced Morningstar Analyst Rating different share classes of funds may have different ratings
