Morningstar Fund Ratings: Weekly Round-up

IShares USD Short Duration High Yield offers investors exposure to the zero to five years segment of the US high yield bond market. This remains an asset class where experienced active managers can add value over a standard index-tracking mandate. But the strategy’s low fee provides a nice tailwind to returns at all times, while the short maturity focus reduces interest rate risk. The strategy is awarded a Morningstar Analyst Rating of Bronze.

Upgrades 

Vanguard FTSE Dev Europe ex UK Equity Index – Silver from Bronze

Dimitar Boyadzhiev

Vanguard FTSE Developed Europe ex UK Equity Index represents a cheap and balanced way for UK-based investors to add diversified exposure to continental European companies. FTSE Developed Europe ex-UK covers around 490 large- and mid-cap companies from 14 developed countries in Europe, excluding the UK. It is one of the cheapest Europe ex-UK open-end funds on offer, and we have a strong conviction in the merits of the benchmark and the ability of the fund to consistently deliver above average returns in the context of its Morningstar Category. We have upgraded all share classes to a Morningstar Analyst Rating of Silver.

Vanguard SRI European Stock GBP Inc – Gold from Silver

Dimitar Boyadzhiev

Vanguard SRI European Stock represents a sensible way for socially conscious investors to get broad and diversified exposure to companies from developed Europe. The investment approach aims to integrate socially responsible considerations into the stock-selection process. With an ongoing charge of 0.16%, the fund is far cheaper than the category's average peer. The returns have ranked in the second quartile of its category on a risk-adjusted basis in the past trailing three- and five-year periods, and we believe it will continue to beat the average peer in its category over the long term. We upgraded all share classes to Morningstar Analyst Rating of Gold.

Downgrades

AB Global High Yield – Neutral from Bronze

Jeroen Siecker

AB Global High Yield’s aggressive approach can lead it to add risk at inopportune times. As a result, its Morningstar Analyst Rating is downgraded to Neutral from Bronze. The ratings on its more expensive share classes drop to Negative.

Alken European Opportunities – Bronze from Silver

Mathieu Caquineau

Alken European Opportunities benefits from the vast experience of its lead manager, Nicolas Walewski. We think his experience is key in executing this contrarian, often aggressive strategy to good effects in the long run. But three departures in the analyst ranks in the last 12 months, including two longstanding members of the team, make us less confident than before about their capabilities. With a lower conviction in the team and our greater focus on fees and benchmark-relative performance expectations under our enhanced ratings framework, the fund’s Morningstar Analyst Rating on its clean and institutional share classes have been downgraded to Bronze from Silver. The more expensive retail share classes land at Neutral. 

Alken Small Cap Europe – Neutral from Bronze

Mathieu Caquineau

Alken Small Cap Europe is led by an experienced stock-picker, but three departures in the analyst ranks in the last 12 months, including two long-standing members of the team, make us less confident than before about their capabilities. These departures come at a difficult time for the fund with a series of setbacks in the stock-picking. Our concerns about the efficacy of the approach in the small-cap universe and the team’s ability to source new ideas in this market segment have further dented our conviction. With a lower opinion of the team and the process as well as the greater focus on fees and benchmark-relative performance expectations under our enhanced ratings framework, the fund’s Morningstar Analyst Rating on its clean share class (EU1) has been downgraded to Neutral from Bronze. The most expensive retail share class A lands at Negative.

BlueBay Investment Grade Bond Fund – Neutral from Bronze

Evangelia Gkeka

The BlueBay Investment Grade Bond strategy benefits from a consistent investment approach and an experienced portfolio management team. This extends to active involvement with the analyst teams across research, idea generation, and specific trade recommendations. While there are positives here, under our enhanced ratings framework, which places a greater focus on fees and benchmark-relative performance, the Morningstar Analyst Rating for the strategy’s clean share class (C EUR) is lowered to Neutral from Bronze. More expensive share classes are rated Neutral; cheaper share classes are rated Bronze.

Ninety One UK Special Situations - Neutral from Silver

Samuel Meakin

Alastair Mundy, lead portfolio manager of Ninety One (formerly Investec) UK Special Situations since 2002, is taking an extended leave of absence from his role for health reasons, and we wish him well in his recovery. Following turnover in the analyst team in 2019, the continuity he provided was an important factor in our ongoing conviction. Additionally, some question marks over aspects of portfolio construction have reduced our overall conviction relative to other UK value strategies. The Morningstar Analyst Ratings for all share classes, including the clean I share class, are downgraded to Neutral from Silver.

Temple Bar Investment Trust (TMPL) – Neutral from Silver

Samuel Meakin

Alastair Mundy, lead portfolio manager of the Temple Bar investment trust since 2002, is taking an extended leave of absence from his role for health reasons, and we wish him well in his recovery. Following turnover in the analyst team in 2019, the continuity he provided was an important factor in our ongoing conviction. Additionally, some question marks over aspects of portfolio construction have reduced our overall conviction relative to other UK value strategies. The Morningstar Analyst Rating is downgraded to Neutral from Silver.

Note: Under the Morningstar Analyst Rating methodology, different fund share classes may have different ratings