Holly Black: Welcome to the Morningstar Manager Check-Up. I'm Holly Black. With me is Jon Miller. He is Head of Manager Research at Morningstar. Hello.
Jonathan Miller: Hi, Holly.
Black: So, you're going to talk to us about three funds that have had their ratings reviewed recently. Where would you like to start?
Miller: So, let's start with Asia. I think this will be quite a fund that's well-followed, so quite well-known by our readers. That's Stewart Investors Asia Pacific Leaders Fund, around £6 billion under management. The manager there is based out in Australia, someone called David Gait. He's been part of the team for a long time. Also, Sashi Reddy who runs the firm's Indian fund. He's a co-manager with him. It's quite well-known and also exhibits long history. A manager called Angus Tulloch, long-standing, retired a few years ago. And since then our conviction in the team has continued to grow. Obviously, Tulloch was a loss. We got long-established managers and team around there. That fund has gone from Silver to Gold. We still like the approach. It's focused on balance sheet strength, franchising power and also integrity in management, so a strong focus on governance which can be tricky in the region, let's say.
Black: So, you don't give out Gold ratings lightly. What is the difference that gets a fund over that hurdle from Silver to Gold?
Miller: Often it's the – if there's been a change, if there's a few question marks, it's just seeing the managers face-to-face a few times. Over time, seeing if they are – you know, if one person leaves, a leader in this example with Angus Tulloch, it could lead to other people moving on. But here, the stability has remained. We like that. The process has remained in place. So, those long-standing elements we continue to see even though there's been a bit of change and here, that's what reinforced our view to take it to Gold.
Black: Okay. What's fund number two?
Miller: We'll change track with a fund that actually had a downgrade from Silver to Bronze and this is Lazard Emerging Markets. The manager James Donald has been there for around 20 years. So, a well-established manager. And this fund is a bit different from peers. It's got a bit of a valuation-sensitive standpoint. So, looking for above-average returns on equity but looking at attractive valuation. So, at certain times, that will lead him into areas like miners or oil and gas stocks and away last year from the likes of Amazon and Alibaba and Tencent that grew really rapidly, you could say valuation was on the high part, maybe they warranted. But that doesn't fit into his way of thinking. So, although he's stuck to his process, we found over the last few years stock selection has been a little bit inconsistent and that's played a role.
Black: So, we know that value has been underperforming growth for years and particularly this year. So, is that always going to hurt that sort of strategy?
Miller: Yeah, well, it depends where the headwinds and tailwinds are in different parts of the market. So, in 2016 when value was in vogue, this fund was second percentile in the category. So, among the top. Last year, near the bottom for the reasons I said about these kinds of high-growth stocks really dominating the market.
Black: Okay. What is our final fund?
Miller: So, the final one is a fund that's stayed Bronze, so we have a positive view on it, Artemis US Select managed by Cormac Weldon. He joined from Threadneedle, so he had a track record of Threadneedle, brought his team over. And actually, that team has lost quite a few members over the last few years. We still think that Weldon is a good manager and that helps reinforce our view at the level of Bronze. What I would say with this fund is that the approach and the process has generally had a leaning towards more growth parts of the market. So, not all out growth. So, it's not heavily ramped up in Netflix and Facebook, Amazon, these sorts of things, although Amazon is a top holding. So, there's been the last few years where we've just said the kind of growth has worked, he has been in a bit of the sweet spot of the market. So, he's outperformed the S&P 500, so the main market in the US When we look at growth peers, he has underperformed those peers. So, we still think this is a good fund. It's not all out growth, but the manager has tended to have that as a part of his thinking over time. So, overall, still some positives there and that's why we reinforced the Bronze rating.
Black: Jon, thank you so much for your time. For Morningstar, I'm Holly Black.
