Morningstar Fund Ratings: Weekly Round-up

JPM Asia Growth has many strengths, including solid leadership, a stable supporting cast, and a wellcodified investment approach. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the Morningstar Analyst Ratings for the vehicle’s cheapest share classes, including the C Net Acc clean share class, have been upgraded to Silver, while its more expensive share classes stay at Bronze.

JPM Asia Growth (LUX) - Silver from Bronze

Andrew Daniels

JPM Asia Growth has many strengths, including solid leadership, a stable supporting cast, and a well-codified investment approach. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the Morningstar Analyst Ratings for the vehicle’s cheapest share classes, including the C (acc) USD clean share class, have been upgraded to Silver, while its more expensive share classes earn Bronze and Neutral ratings.

JPMorgan Asian Smaller Companies - Silver from Bronze

Andrew Daniels

JPMorgan Asian Smaller Companies has been led by Joanna Kwok since April 2013, though she’s been a comanager here since 2009. She is supported by backup manager Mark Davids, two dedicated emerging-markets small-cap analysts, and the sector/product analysts and country specialists within the firm’s 100-member emerging-markets and Asia-Pacific equities team. Kwok is a solid manager who provides good stock-specific and industry-level insights during meetings and clearly makes good use of the vast analytical resources available to her.

The process follows JPMorgan’s quality-growth approach, but Kwok specifically seeks 80 to 110 firms whose market caps lie between $100 million and $6 billion that can become large caps of the future. While the approach has long been well-codified and consistent, we previously had questions with the team’s small-cap coverage breadth. That said, approximately 85% of portfolio holdings are now covered by a sector/product analyst, up from 65% as of the prior review. This material improvement provides increased comfort that the team can obtain an information advantage on small-cap firms and makes the approach harder to replicate. As a result, the Morningstar Analyst Ratings have been upgraded to Silver from Bronze across this vehicle’s share classes.

JPM Latin America Equity - Silver from Bronze

Samiya Jmili

This is a time-tested quality strategy, manoeuvered by long tenured co-managers Luis Carrillo and Sophie Bosch de Hood, who have a proven track record investing in the Latin America region. The process is consistent, well-structured and focused on quality growth stocks with an eye on valuations. Therefore, we maintain a score of Above Average on both the People and Process pillars. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, this results in an upgrade from Bronze to Silver for the least expensive shares, with the more expensive ones landing Morningstar Analyst ratings of Bronze or Neutral.

iShares EURO STOXX 50 ETF - Bronze from Neutral

Kenneth Lamont

This fund’s mega-cap focus means it is an imperfect tool with which to access eurozone equities, but its ultra-low management fee means we still expect it to edge out rivals over longer periods. The Euro Stoxx 50 Index is a widely followed benchmark to gauge investor sentiment on eurozone equities. But with only 50 components capturing 60% of the euro area’s total market value, it stands as a narrow investment proposition that does not fully represent the opportunity set available to investors.

The eurozone large-cap Morningstar Category includes passive and active funds that are better diversified. With an ongoing charge of just 0.10%, the fund is one of the very cheapest in the category. Because of its concentration in giant caps, the fund lacks the tailwind generally provided by "smaller" caps over longer investment horizons. Despite this, the hefty fee gap between this fund and that charged by peers should more than compensate for this deficit. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Bronze from Neutral.

Lyxor Euro Stoxx 50 DR ETF - Neutral from Bronze

Kenneth Lamont

This fund’s mega-cap focus means it is an imperfect tool with which to access eurozone equities, but its ultra-low management fee means we still expect it to edge out rivals over longer periods. The Euro Stoxx 50 Index is a widely followed benchmark to gauge investor sentiment on eurozone equities. But with only 50 components capturing 60% of the euro area’s total market value, it stands as a narrow investment proposition that does not fully represent the opportunity set available to investors. The eurozone large-cap Morningstar Category includes passive and active funds that are better diversified. With an ongoing charge of 0.20%, the fund is one of the cheapest in the category, but cheaper exchange-traded funds tracking the same benchmark are available. Because of its concentration in giant caps, the fund lacks the tailwind generally provided by "smaller" caps over longer investment horizons. Despite this, the hefty fee gap between this fund and that charged by peers should more than compensate for this deficit over long periods. For these reasons, we have awarded this fund a Morningstar Analyst Rating of Bronze.

UBS ETF EURO STOXX 50 EUR A dis - Bronze from Neutral

Kenneth Lamont

This fund’s mega-cap focus means it is an imperfect tool with which to access eurozone equities, but its ultra-low management fee means we still expect it to edge out rivals over longer periods. The Euro Stoxx 50 Index is a widely followed benchmark to gauge investor sentiment on eurozone equities. But with only 50 components capturing 60% of the euro area’s total market value, it stands as a narrow investment proposition that does not fully represent the opportunity set available to investors. The eurozone large-cap Morningstar Category includes passive and active funds that are better diversified.

With an ongoing charge of just 0.15%, the fund is one of the cheapest in the category. Because of its concentration in giant caps, the fund lacks the tailwind generally provided by "smaller" caps over longer investment horizons. Despite this, the hefty fee gap between this fund and that charged by peers should more than compensate for this deficit. For these reasons, we have awarded this fund a Morningstar Analyst Rating of Bronze.

Downgrades

BlackRock Fixed Income Global Opportunities fund - Neutral from Bronze

Louise Babin

BlackRock has taken the decision to close the BlackRock Fixed Income Global Opportunities fund from 1st June 2020 due to the vehicle not reaching critical mass in asset size. Therefore we downgrade all share classes on this strategy to Neutral. The investment strategy will continue to be offered through the Luxembourg UCITS vehicle BGF Fixed Income Global Opportunities which is far larger, £8.3bn as at end February 2020.

iShares FTSE MIB ETF - Negative from Neutral

Briegel Leitao

This fund tracks the FTSE MIB Index and offers concentrated large-cap Italian equity exposure. The 40 companies included in the portfolio are the 40 largest and most liquid companies traded on the Borsa Italiana, representing approximately 80% of the total free-float market capitalisation. The strategy is particularly top-heavy at both the stock and sector level, with the top 10 constituents accounting for 65%-70% of the index. In the Italian equity market, concentrated positioning such as this effectively represents a strong bet on a few stocks and sectors that give active peers in the Italy equity Morningstar Category a lot of potential with which to add value.

The fund is priced competitively versus active peers in the category with an ongoing charge of 0.35%. However, cheaper FTSE MIB-tracking alternatives are on offer, hindering this strategy’s expected returns over time, relative to passive peers. For these reasons, the fund has been downgraded to a Morningstar Analyst Rating of Negative (down from Neutral).

Lazard Emerging Markets - Bronze from Silver

Lena Tsymbaluk

Lazard Emerging Markets Equity boasts a veteran leader, robust supporting cast, and a disciplined process emphasizing relative-value orientation that should allow it to outperform. However, under our new ratings framework, which places a greater focus on fees and benchmark-relative performance expectations, the Morningstar Analyst Rating for the fund’s clean A Inc USD share class has been downgraded to Bronze from Silver. Some of the more expensive share classes earn a Neutral rating.

Lazard Emerging Markets Equity - Bronze from Silver

Lena Tsymbaluk

Lazard Emerging Markets boasts a veteran leader, robust supporting cast, and a disciplined process emphasizing relative-value orientation that should allow it to outperform. However, under our new ratings framework, which places a greater focus on fees and benchmark-relative performance expectations, the Morningstar Analyst Rating for the fund’s clean A Acc share class has been downgraded to Bronze from Silver.

UBS ETF MSCI EMU EUR A dis - Silver from Gold

Kenneth Lamont

While this fund is an excellent choice for investors seeking eurozone large-cap equities, following recent fees cuts elsewhere, there are now cheaper exchange-traded fund rivals tracking the same index. This fund is still one of the cheapest and most representative index funds in a category in which passives have performed well. The fund offers broad and representative cap-weighted exposure to eurozone large-cap equities. With around 240 constituents, including a number of mid-caps 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. With an ongoing charge of 0.18%, the fund is one of the cheapest in the category, but cheaper ETFs tracking the same benchmark are available.The fund has comfortably outperformed its average peer within the eurozone large-cap Morningstar Category over three, five, and 10 years. It has also landed in the top quartile when ranked by risk-adjusted returns over the same period. For these reasons, we have awarded this fund a Morningstar Analyst Rating of Silver.

NB Under the Morningstar Analyst Rating methodology different share classes of the same fund may have a different rating.