Upgrades
Fidelity European Dynamic Growth – Gold from Silver
Francesco Paganelli
We have a high opinion of Fabio Riccelli, the strategy’s skipper since November 2008, and our conviction has strengthened further after recent changes that have alleviated our previous concerns around Riccelli’s workload. Karoline Rosenberg was appointed co-portfolio manager on this strategy in January 2020 and took over the lead role on the Iberia fund from Riccelli. The duo remains well supported by Fidelity's sizable research analyst team, leading to an upgrade of the People Pillar rating to High. Under our enhanced ratings framework, which puts more focus on fees and expected benchmark relative performance, the strategy’s Morningstar Analyst Rating has been upgraded from Silver to Gold for its cheapest share classes, while more expensive ones land at Silver.
Magallanes V.I. UCITS Iberian Equity – Gold from Silver
Francesco Paganelli
We think this is a compelling option for investors seeking an all-cap exposure to the Iberian market, thanks to a thorough investment process executed by its highly experienced portfolio manager Iván Martín. We therefore retain the strategy’s High rating for the People and Process Pillars. Under our enhanced ratings framework, which puts more focus on fees and expected benchmark-relative performance, the strategy’s Morningstar Analyst Rating was upgraded from Silver to Gold for its cheapest share classes, while more expensive ones land at Silver.
Lyxor Euro Corporate Bond ETF Acc – Bronze from Neutral
Jose Garcia Zarate
From inception until July 2019 this passive fund tracked a mainstream corporate bond index, albeit one with a very strong large cap bias which fell short of providing a good representation of the underlying market. It now tracks a broader index that screens issuers for environmental, social and governance (ESG) credentials. The change of benchmark has enhanced diversification of the portfolio, while the ESG filters do not detracting from returns relative to the broad market. The strategy’s low cost provides a nice tailwind to returns to all times and supports an upgrade to its Morningstar Analyst Rating from Neutral to Bronze.
PineBridge Asia ex Japan Small Cap Equity – Silver from Bronze
Samuel Lo
PineBridge Asia ex Japan Small Cap Equity's impressive lead manager Elizabeth Soon and the robust investment process continue to underpin our conviction. Soon has been at the helm of this strategy since December 2008 and has delivered outstanding results over her tenure. She also serves as head of Asia ex-Japan equities and is a seasoned portfolio manager with 31 years of investment experience. Soon is supported by the 23-member Asia ex-Japan equity team, which has 15 years of investment experience and six years of firm tenure on average.
The team's turnover has been high in recent years, and we continue to monitor the situation, although we are confident that Soon can continue to lead the strategy successfully given her experience and hands-on approach. The strategy follows a sensible and time-tested approach that looks for quality-growth companies at a reasonable valuation. It’s based on a well-codified process that classifies companies into several growth or mature categories depending on their maturity and cyclicality. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, a Morningstar Analyst Rating of Silver is assigned to the cheaper share classes, including the clean share class Y, while the more expensive share classes carry a Bronze rating.
UBS ETF MSCI UK IMI SRI – Silver from Bronze
Dimitar Boyadzhiev
UBS MSCI UK IMI SRI offers a pragmatic approach to gain exposure to UK equities with a strong focus on environmental, social, and governance factors. The MSCI UK IMI Extended SRI 5% Issuer Capped Index is a soundly constructed, well-diversified, and representative benchmark for the global developed markets large- and mid-cap market. Active risk, as measured by tracking error versus the MSCI UK IMI parent index, was nearly 3% from May 2011 to May 2020. This means the fund’s risk/return profile can be expected to closely approximate the performance of broader UK stock indexes, such as the FTSE AllShare, over the long term, but short-term performance can deviate. At 0.28%, the ongoing charge is above average compared with plain-vanilla UK equity exchange-traded funds, which levy ongoing charges from 0.04%. We have upgraded this fund’s Morningstar Analyst Rating to Silver from Bronze.
Downgrades
F&C Investment Trust – Bronze from Silver
Bhavik Parekh
Investors remain in safe hands with experienced manager Paul Niven at the helm and his pragmatic and well-executed approach should benefit investors in the long term. However, while our conviction in the people and process have not changed, under our enhanced ratings framework, which places a greater emphasis on fees, the trust's Morningstar Analyst Rating is downgraded to Bronze from Silver because of non-management-fee costs reducing competitiveness.
BNY Mellon Global Absolute Return – Neutral from Bronze
Matias Möttölä
We have downgraded the Morningstar Analyst Rating of the BNY Mellon Global Absolute Return fund to Neutral from a previous Bronze. We continue to have a positive view on the tenured investment team at Insight led by Matthew Merritt who has been at the Broad Opportunities strategy--of which this is a slightly less directional variant--since its inception in 2004 as a mandate. The fund’s investment process balances directional bets in equities and fixed-income with real assets and a range of total return sleeves. Although the process has some positives, among them its flexibility and distinctiveness, we are not convinced at this point of the value added its complexity brings to the table. Losses in the recent market turbulence from the real asset and total return sleeves were slightly worrying as well.
Insight Broad Opportunities – Neutral from Bronze
Matias Möttölä
We have downgraded the Morningstar Analyst Rating of the Insight Broad Opportunities fund to Neutral from a previous Bronze. We continue to have a positive view on the tenured investment team at Insight led by Matthew Merritt who has been at the strategy since its inception in 2004 as a mandate. The fund’s investment process balances directional bets in equities and fixed-income with real assets and a range of total return sleeves. Although the process has some positives, among them its flexibility and distinctiveness, we are not convinced at this point of the value added its complexity brings to the table. Losses in the recent market turbulence from the real asset and total return sleeves were slightly worrying as well.
iShares Core € Corp Bond ETF – Bronze from Silver
Jose Garcia Zarate
This remains a compelling option to gain broad exposure to the market of investment-grade-rated euro denominated corporate bonds. The ETF tracks an index that provides wide diversification across sectors and issuers. The compounding benefits of low fees are a key plus and the strategy is expected to deliver returns above its Morningstar Category average. But ultimately this is market where experienced active managers may add value via targeted calls. In the context of our improved ratings framework and its focus on net return generation over multiple cycles, the Analyst Rating for this strategy is adjusted from Silver to Bronze.
Note: under the Morningstar methodology different share classes of funds may have different ratings
