New Ratings
Capital Group World Growth and Income - Gold
Jeffrey Schumacher
We’ve initiated coverage on Capital Group World Growth and Income. The fund’s sensible approach and skilled personnel, despite turnover, earn its cheapest share classes a Morningstar Analyst Rating of Gold, while pricier shares net Silver.
A slew of changes, planned and otherwise, have recast this strategy in recent years. Yet Capital Group is well-equipped to handle the changes. The firm splits the strategy’s $75 billion in assets between subsidiaries Capital Research Global Investors and Capital World Investors, where a cast of nine seasoned managers independently manage their own sleeves. We believe this setup allows investors to benefit from the managers' experience and ability and the firm’s systemic strengths and deep analytical resources. Other than meeting an income target, the managers have considerable latitude to ply their preferred investment styles. For instance, they can invest heavily in a small group of their best ideas, own many stocks at lower weights, or hold significant cash levels while waiting for compelling opportunities.
The combination of separately managed sleeves invested across the large-cap global equity universe enhances diversification and damps overall volatility. The fund has built a solid long-term track record, although its performance over the past decade has been hindered by its higher than average allocation to cash and bonds and its structural underweight of US equities.
Upgrades
Xtrackers MSCI World Quality ETF- Silver from Bronze
Dimitar Boyadzhiev
Xtrackers MSCI World Quality ETF is a great low-cost index strategy that should hold up a little better than the market and most of its peers during downturns. While it probably won't beat the market in strong rallies, it should offer better risk-adjusted performance over the long term. Moreover, its expense ratio is lower than over 90% of its category peers, which gives the fund a durable advantage over the long term. We upgraded its Morningstar Analyst Rating to Silver from Bronze.
iShares Edge MSCI World Quality Factor ETF - Silver from Bronze
Dimitar Boyadzhiev
iShares Edge MSCI World Quality Factor ETF is a great low-cost index strategy that should hold up a little better than the market and most of its peers during downturns. While it probably won't beat the market in strong rallies, it should offer better risk-adjusted performance over the long term. Moreover, its expense ratio is lower than over 90% of its category peers, which gives the fund a durable advantage over the long term. We upgraded its Morningstar Analyst Rating to Silver from Bronze.
iShares Stoxx Europe 50 - Bronze from Neutral
Dimitar Boyadzhiev
iShares Stoxx Europe 50 is a narrow investment proposition, but its adequate diversification at the stock level and low category-relative fee make it a good option for investors seeking long-term exposure to the largest European companies. Focusing on the 50 largest European companies, this fund will always have a mega-cap tilt, which may limit its long-term performance relative to active and passive peers in the Europe large-cap blend equity Morningstar Category. Going forward, such a concentrated portfolio may result in unintended bets toward specific stocks, countries, and industries. This limits its Morningstar Analyst Rating to Bronze.
Threadneedle UK - Silver from Bronze
Fatima Khizou
Threadneedle UK Equity’s experienced manager and broad and stable analytical resources, together with a disciplined investment approach, continue to make it a compelling core UK equity offering. Our positive view on the investment team and approach has not changed. However, under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the Morningstar Analyst Rating for the Z Acc GBP share class is upgraded to Silver. Ratings for moreexpensive share classes land at Bronze.
Threadneedle (Lux) UK - Bronze from Neutral
Fatima Khizou
Threadneedle (Lux) UK Equity’s experienced manager and broad and stable analytical resources, together with a disciplined investment approach, continue to make it a compelling core UK equity offering. Our view on the investment team and approach has not changed. However, under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the Morningstar Analyst Rating for the ZG Acc GBP share class is upgraded to Bronze. Ratings for the other share classes range from Neutral to Silver.
Downgrades
Nordea 1 European Value - Neutral from Bronze
Ronald Van Genderen
We still think this strategy benefits from a seasoned manager and a long-standing unconstrained approach. Tom Stubbe Olsen has been managing Nordea 1 European Value since its launch in November 1998. From 2002 to mid-2014, he was supported by Léon Kirch. Since Kirch's departure in 2014, Olsen has built up a supporting analyst team. However, turnover among these analysts has been high, which is a concern to us. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, this leads to a downgrade of the Morningstar Analyst Rating to Neutral from Bronze for most of the share classes. Only the cheapest share classes retain the Bronze rating.
