New Ratings
Stewart Investors Asia Pacific Leaders - Gold
Andrew Daniels
Stewart Investors Asia Pacific Leaders is run by the 12-member Sustainable Funds Group within Stewart Investors, and it’s been led by David Gait since July 2016, when longtime manager Angus Tulloch stepped away. Gait is an experienced investor with more than 20 years of firm tenure and has also led the all-cap-focused Stewart Investors Asia Pacific Sustainability strategy since December 2005. He is joined by Sashi Reddy, who joined the firm in 2007 and is the lead on Stewart Investors Indian Subcontinent Sustainability. The duo employs Stewart Investors’ best-in-class investment approach, seeking stocks led by reliable management teams that can deliver sustainable and predictable growth through pricing power, franchise strength, and limited regulatory oversight. Gait and Reddy consistently demonstrate an intimate knowledge of current and prospective holdings, and we’ve also been impressed with other members of the stable SFG team, including Douglas Ledingham and Jack Nelson. Overall, increased conviction in--and comfort with--Gait, Reddy, and the supporting SFG subgroup leads to Morningstar Analyst Ratings of Gold on this vehicle’s cheapest share classes--including the VI USD Acc clean share class--while its more expensive share classes earn Silver ratings.
Upgrades
Uni-Global Equities Japan - Gold from Silver
Ronald Van Genderen
Uni-Global Equities Japan is a strong core holding for Japan equity exposure thanks to its experienced and committed team and its robust low-risk approach. Risk management is at the heart of the investment process. The strategy aims to diversify risks and to produce lower volatility and reduced drawdowns compared with the broad Japanese market. As it has proven its efficacy in the Japanese equity market, we have increased our conviction in its process. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, this leads to an upgrade of the Morningstar Analyst Rating to Gold from Silver for the cheapest share class. For the more-expensive share classes the rating remains Silver.
Schroder ISF Japanese Equity - Bronze from Neutral
Samuel Lo
Schroder ISF Japanese Equity is managed by a passionate and methodical portfolio manager who is backed by a solid and stable investment team. The strategy follows a sensible bottom-up-driven, growth-at-a-reasonable-price approach that has seen some positive changes in recent years. However, the manager’s cap on the portfolio’s overall price/book may hinder him from implementing highconviction growth ideas, and the benchmark-consciousness may limit the strategy’s potential to outperform in the long-run. Nonetheless, under our enhanced ratings framework, which places a greater focus on fees and benchmark-relative performance, the clean C Acc JPY share class’ Morningstar Analyst Rating is lifted to Bronze from Neutral. The other share classes are rated Bronze or Neutral.
Xtrackers 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 0.09%, 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 over long periods. For these reasons, we have awarded this fund a Morningstar Analyst Rating of Bronze.
Downgrades
AS SICAV I World Equity - Neutral from Bronze
Andrew Daniels
ASI World Equity is managed by Aberdeen Standard’s long-term quality global equity team. Despite the February 2020 departure of longtime team head Stephen Docherty, the strategy continues to boast a very experienced group of nine managers who share decision-making duties--including Jamie Cumming, Bruce Stout, and Victoria MacLean--helping to mitigate key-person risk. Leveraging the firm’s vast analytical resources, the managers build a 35- to 80-stock portfolio, with quality and value being the two key considerations. While the approach’s quality tenet remains intact, we now have concerns over how closely the team is adhering to the value tenet. Not only has the portfolio drifted to the growth area of the Morningstar Style Box from the core area during the past five years, but there also was a notable increase in the portfolio’s price multiples throughout 2019. Mostly stemming from several initiations and top-ups of U.S. growth stocks, the portfolio’s price/earnings multiple of 24.5 times sat well-above the MSCI All Country World Index’s 19.0 times as of January 2020; it was also much higher than the portfolio’s 17.9 times measure as of December 2018. Reflecting these concerns around the evolving investment approach, the Process rating has been downgraded to Average from Above Average, warranting Morningstar Analyst Rating downgrades to Neutral from Bronze across all the vehicle’s share classes.
ASI Global Equity - Neutral from Bronze
Andrew Daniels
ASI Global Equity is managed by Aberdeen Standard’s long-term quality global equity team. Despite the February 2020 departure of longtime team head Stephen Docherty, the strategy continues to boast a very experienced group of nine managers who share decision-making duties--including Jamie Cumming, Bruce Stout, and Victoria MacLean--helping to mitigate key-person risk. Leveraging the firm’s vast analytical resources, the managers build a 35- to 80-stock portfolio, with quality and value being the two key considerations. While the approach’s quality tenet remains intact, we now have concerns over how closely the team is adhering to the value tenet. Not only has the portfolio drifted to the growth area of the Morningstar Style Box from the core area during the past five years, but there also was a notable increase in the portfolio’s price multiples throughout 2019. Mostly stemming from several initiations and top-ups of U.S. growth stocks, the portfolio’s price/earnings multiple of 24.5 times sat well-above the MSCI All Country World Index’s 19.0 times as of January 2020; it was also much higher than the portfolio’s 17.9 times measure as of December 2018. Reflecting these concerns around the evolving investment approach, the Process rating has been downgraded to Average from Above Average, warranting Morningstar Analyst Rating downgrades to Neutral from Bronze across all the vehicle’s share classes.
ASI Global Ethical Equity - Neutral from Bronze
Andrew Daniels
ASI Global Ethical Equity is managed by Aberdeen Standard’s long-term quality global equity team. Despite the February 2020 departure of longtime team head Stephen Docherty, the strategy continues to boast a very experienced group of nine managers who share decision-making duties--including Jamie Cumming, Bruce Stout, and Victoria MacLean--helping to mitigate key-person risk. Leveraging the firm’s vast analytical resources, the managers build a 35- to 80-stock portfolio, with quality and value being the two key considerations. This strategy also an ethical mandate, which means screening out firms involved in perceived unethical practices, including animal testing, weapons making, and alcohol, among others.
While the approach’s quality tenet remains intact, we now have concerns over how closely the team is adhering to the value tenet. Not only has the portfolio drifted to the growth area of the Morningstar Style Box from the core area during the past five years, but there also was a notable increase in the portfolio’s price multiples throughout 2019. Mostly stemming from several initiations and top-ups of U.S. growth stocks, the portfolio’s price/earnings multiple of 23.6 times sat well-above the MSCI All Country World Index’s 19.0 times as of January 2020; it was also much higher than the portfolio’s 17.3 times measure as of December 2018. Reflecting these concerns around the evolving investment approach, the Process rating has been downgraded to Average from Above Average, warranting Morningstar Analyst Rating downgrades to Neutral from Bronze across all the vehicle’s share classes.
Jupiter Merlin Balanced - Neutral from Bronze
Rajesh Yadav
We continue to have confidence in Jupiter Merlin Balanced’s experienced and savvy portfolio managers John Chatfeild-Roberts and Algy Smith-Maxwell and a strong supporting team. The team has consistently executed the high-conviction philosophy, which is founded in investing in managers with a longer-term and capital-preservation mindset. 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 is lowered to Neutral from Bronze.
Jupiter Merlin Growth - Neutral from Bronze
Rajesh Yadav
We continue to have confidence in Jupiter Merlin Growth’s experienced and savvy portfolio managers John Chatfeild-Roberts and Algy Smith-Maxwell and a strong supporting team. The team has consistently executed the high-conviction philosophy, which is founded in investing in managers with a longer-term and capital-preservation mindset. 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 is lowered to Neutral from Bronze.
Value Partners High-Dividend Stocks - Neutral from Bronze
Germaine Share
Value Partners High-Dividend Stocks has been led by Norman Ho since its inception in October 2002 and has produced a strong long-term track record under his stewardship. While we maintain our confidence in Ho and his supporting cast, we continue to have some reservations around the investment process, specifically regarding its liquidity management. To the manager’s credit, he is in the process of trimming the smaller, illiquid names in the portfolio and looks to invest in larger companies in the future with the aim to achieve a much healthier liquidity profile. Ho also plans to bring other sensible changes to the investment process but it is still early days. Under our enhanced ratings framework, which places a greater focus on fees and outperformance potential, the Morningstar Analyst Rating for all share classes of the strategy has been downgraded to Neutral from Bronze.
Under Review
H2O Allegro
Note: Under the Morningstar Analyst Rating methodology different share classes of a fund may have a different rating
