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 here for your regular ratings roundup. Which funds have you been looking at lately? Where should we start?
Miller: Yes, we've got a bit of a diverse three to look at today actually. And we'll start with the Candriam Equities Biotechnology Fund. That's been run by Rudi Van den Eynde for 20 years or so. So, one of the most if not the most experienced manager we track in that space. Clearly, this is a very, very niche area, involves a lot of analysts who work around success or not of biotech which can have a lot of hits or misses. So, what the manager's approach here is, is he has a set of large companies and then a few smaller ones, more innovative ones, which means the fund is actually quite near to the index in terms of exposure. But that flexibility that he does on the smaller companies we feel does give room to provide outperformance which he has shown.
Black: So, obviously, these niche investment areas, they can be very popular with investors because they sort of capture the imagination. But they do come with a lot of risks. So, as you say, does that mean it's harder for this type of fund to get a high rating?
Miller: Well, we're talking about how the process is executed, the quality of the people and the investment house itself under the parent assessment. And for this one, we quite like the, what we call, the barbell approach which we think can mitigate a bit some of more extremes in the performance you might see.
The next one we can talk about actually, Baillie Gifford Global Discovery, it's actually got a sister version in the investment trust space, so Edinburgh Worldwide, and that is highly innovative, very niche spaces as well in terms of small cap, so global smaller companies really investing in sub-$5 billion of market cap and a heavy leaning to healthcare and technology. So, healthcare space kind of a niche exploratory area some of them which haven't seen success but we like the depth of research of Baillie Gifford in some of these areas and here this is a fund which has seen some huge gains at times. So, a lot going on in this fund. About a third of the portfolio isn't even profit making yet. So, there is a bit of a health warning on what you're looking at here. But we feel there are a quite lot of positives and this retains its Silver rating.
Black: And when you are looking at fund managers who are stepping into these areas where you really do need expertise to understand the companies, do you bear that in mind? For example, does a biotech fund manager need a background in science or medicine or can any fund manager do this with the right due diligence?
Miller: I think it does help. There's so much change going on. New technologies, new ways of assessing health risks in all these sorts of facets that you often see these areas actually have some specialist partners in terms of it could be professors or leading neurosurgeons, these sorts of things, who actually contribute in terms of like an external committee at times.
Black: Okay. Let's move on to our final fund.
Miller: Sure. So, we're into the fixed income space now via the JPMorgan Global Bond Opportunities Fund. Now, this is team-based as well. So, we've obviously got lead managers, there's input from JPMorgan's teams in different spaces, so in high yield, corporate bonds, emerging market debt, some other specialized part of the fixed income market. They all come together weekly to give some inputs into what's happening in their space; more quarterly, a formal asset allocation committee in effect looking at where they should be adjusting exposures. And so, it's multi-faceted. So, it can invest in all areas of the fixed income market. It has a history to be fair of investing in high yield, so quite high exposure to high yield which had done well. So, they've had a bit of a tailwind from that. But at the same time, they've adjusted things as and when they see environments changing. So, we think they have done that well. So, quite nimble, quite hands on in terms of asset allocation and quite a few of those bits we see having worked over time. So, that fund actually got upgraded from Neutral to Bronze.
Black: Jon, thank you so much for your time. For Morningstar, I'm Holly Black.
