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 back again to give us three ratings updates on some funds you've been looking at lately. Where would you like to start?
Miller: Let's start going into China which has actually been a very good performing market this year and more specifically the JPMorgan China Opportunities A-Share Fund. So, A shares meaning it's a particular part of the market in China, domestic-focused. And for here, there's a lot of due diligence that needs to be done around companies based on corporate governance and such like. And we think the team at JPM are very strong in this space. The manager took on this fund about three years ago. They run a wider China equity fund. So, three years down the line now, we've looked more in-depth around their process, their stock selection and it's really come through in leaps and bounds. Overall, we've taken that fund from Neutral to Silver.
Black: That's quite the upgrade. Do you often jump funds up by two ranks rather than just one?
Miller: It can happen from time to time. There's no real prescribed reason. But I think what we wanted to see here from maybe previous couple of years was also the fact that with such a high growth market you can just hit a couple of home runs potentially and do really well but it's the depth of work across the board that stood out for us and that means that we have an above average view on people, an above average view on process and we like the house as well. So, when you bring that all together, in a market where you can outperform quite strongly, that's helped take the rating up to Silver.
Black: Okay. On to fund number two.
Miller: So, here, we're going for a SRI fund, so socially responsible investing. And this is a tracker fund, so a passive in the emerging markets space. So, iShares MSCI Emerging Markets SRI. So, as I said, this is an ETF, so you can trade it like a stock on the market and here, there are certain rules around what's in place around the strategy here. And what it does is it looks at MSCI's work on sustainability, some controversies and screens out some stocks and looks at the top 25% of stocks in the emerging markets space through the lens of which they come through and also excludes fossil fuels. We've taken this from Neutral to Bronze. We think it's a process that takes out those key parts with people looking for some sort of sustainability SRI type approach. It's got rules because it's a passive for what it excludes. And all told, fees are very cheap here in the 25-basis-point mark.
Black: Now, when you're assigning these ratings on an active fund, meeting the manager is a crucial part of that process. So, how does that change the way you ascribe a rating when you are looking at a tracker that effectively doesn't have a manager?
Miller: The key part here is around the representation of the index, so how wide and breadth you get from investing. Here, there are some elements that are taken out because of the ESG element, the SRI element that we've talked about. So, you get a decent representation. Where it's the whole of the market and we think it's well structured, you could get a high on the process part. Here, it's ended up as above average because there's a few bits taken out the elements that bring in the SRI we think do have some positives.
Black: Okay. And what is our final fund?
Miller: So, our final fund is a bond fund, Pimco Total Return. So, Pimco is a very well-resourced fixed income house. We think highly of the people there. The managers in place, the likes of Scott Mather, Mark Kiesel, these are seasoned investors in the fixed income space. This fund looks at – you can kind of look at it as a bit of a best ideas across the board. And this is a fund that used to be run by a well-known manager called Bill Gross who had a very strong run and left Pimco about five or so years ago. Since then, these managers have carried on from where he left off, so some really strong performance in different markets. I mean, no one could have predicted the Covid virus, but when you take those elements into account being able to profit from falling government bond yields as well as a bit less risk on the table than peers invested them quite well in the first quarter. So, as I said, no one could have predicted that, but we think the process and the people in place have got some positive attributes here and Silver is a strong rating for our view here.
Black: Jon, thank you so much for your time. For Morningstar, I'm Holly Black.
