Morningstar Fund Ratings: Weekly Round-up

We have initiated coverage on Barings EM Sovereign Debt, an EM hard currency investment grade and high yield sovereign bond strategy, that has also the flexibility to invest in quasi-sovereign bonds and up to 15% in EM corporate bonds. Cem Karacadag, Head of EM Sovereign Debt is the lead manager and has 26 years’ experience across a variety of roles linked to the asset class. Ricardo Adrogué, Head of Global Sovereign Debt and Currencies at Barings is the back-up manager. He has 28 years’ experience. The team’s research process is thorough, multi-faceted and focused on deep fundamental sovereign analysis where each country is analysed in detail. The strategy generated very strong absolute and risk-adjusted returns compared to peers and the category benchmark since inception in September 2015. It brings an experienced management and analyst team and has consistently applied its well-defined investment process earning a Morningstar Analyst Rating of Bronze for the clean C share class. Cheaper ones are rated Silver, while more expensive ones are rated Neutral.

AXAWF Global Factors - Sustainable Equity – Silver

William Chow

AXAWF Global Factors-Sustainable Equity is a systematic strategy led by Rosenberg’s (a boutique of AXA) Global CIO and Head of Research Gideon Smith since inception in July 2013. The team is wellresourced and experienced with 40 investment professionals, sporting an average 15 years of experience and tenure of over 10 years on average. The strategy’s highly structured quantitative process utilizes low volatility and high quality factors, while an ESG component is applied to exclude certain industries entirely and size stock positions based on their qualitative ESG scores. Since its inception to June 2020, the strategy delivered superior performance over its category benchmark and peer group. Rosenberg’s quantitative prowess and its experienced team earns a Morningstar Analyst Rating of Silver across all share classes.

Comgest Growth Japan – Silver

Hiroaki Sato

We have initiated coverage on Comgest Growth Japan, a Japanese equity strategy with a growth tilt. The strategy is managed in a collegial way by a team of four. Chantana Ward and Richard Kaye each sport over 20 years of investment experience, and they have been comanaging the Japan equities strategy for over 10 years, with two team members added along the way. The investment team employs Comgest's hallmark investment approach: a concentrated portfolio built on bottom-up stock selection focusing on quality growth. The strategy has delivered strong results for investors over the long term. The disciplined and time-tested investment approach managed by an experienced and stable team earns a Morningstar Analyst Rating of Silver across all share classes.

MS INVF US Growth – Silver

Jeffrey Schumacher

An established and insightful team and a well-executed and distinctive approach power MS INVF US Growth's Morningstar Analyst Rating of Silver for its cheapest share classes including the clean Z share class, while pricier ones earn Bronze and Neutral ratings. Dennis Lynch’s Counterpoint Global team sets the strategy apart. Lynch, a former US Morningstar Fund Manager of the Year, has led the team for 21 years and works alongside 14 team members, six of whom have double-digit tenures. With no departures since 2011, the team demonstrates stability but has also grown in a cautiously smart fashion. The team's unique and thoughtful investment culture fuels an effective approach. They aim to build a compact portfolio of competitively advantaged companies. Favored areas offer opportunity and risk, as several holdings aren't yet profitable. Strong downside performance is hardly guaranteed here, so investors must have a long-term mindset.

Pictet Global Environmental Opportunities – Bronze

Ronald Van Genderen

This strategy forms a solid choice in the ecology space as it boasts an experienced team that benefits from additional resources. Luciano Diana and Gabriel Micheli have been at the helm since the repositioning of the strategy in October 2014. Both are well-experienced in the environmental market space. Since their start at this strategy, they have been supported by a third portfolio manager, but over the years we have seen some changes here. With three members, the team is relatively well-resourced compared with most of its peers. The managers can leverage Pictet's 34-member thematic equities team and benefit from the distinctive support of a two-member advisory board. The strategy uses a similar well-structured and repeatable bottom-up approach applied at all Pictet's thematic equity offerings. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmarkrelative performance, the Morningstar Analyst Rating stands at Bronze for most share classes. Only the most expensive share classes receive a Neutral rating.

Upgrades

Artemis Income – Silver from Bronze

Bhavik Parekh

Artemis Income has a well-executed process and capable management team, making it a solid offering for investors seeking core exposure to UK equities with an above-market dividend yield and growing income stream. Our Above-Average views on People and Process remain unchanged, and under our enhanced ratings framework, which puts more focus on fees and expected benchmark-relative performance, the strategy’s Morningstar Analyst Rating is upgraded to Silver form Bronze for the clean I Inc share class. Other share classes range from Bronze to Silver. 

BSF Fixed Income Strategies – Silver from Bronze

Evangelia Gkeka

Under our enhanced ratings framework, which places a great focus on fees and benchmark-relative performance the Morningstar Analyst Rating for BSF Fixed Income Strategies’ clean share class (D) has been upgraded to Silver from Bronze. More expensive share classes are still rated Bronze, while the most expensive share class is rated Neutral. Investors here benefit from the depth, quality and experience of its management team, the disciplined and established process applied over the years and a consistent long-term track record. Lead manager Michael Krautzberger, who is also head of BlackRock’s euro fixed-income team, was the architect behind the strategy’s launch in 2009 and is backed by Johan Sjogren and Tom Mondelaers.

Lyxor MSCI India ETF – Silver from Bronze

Briegel Leitao

Lyxor MSCI India ETF’s large- and mega-cap bias means that it is an imperfect tool through which to access the broader Indian equity market. This focus leaves investors exposed to significant single-stock concentration risks and leaves ample room across the market-cap spectrum for active managers to add value. These concerns, as well as the existence of cheaper alternatives in the category, underpin the fund’s Morningstar Analyst Rating of Neutral. The fund tracks the performance of the market-capweighted MSCI India Index, which covers 85% of the total Indian equity market by size. By number, however, the fund tracks just 85 of the 4,000 listed Indian equities available across domestic exchanges, meaning that the fund fails to adequately capture much of the opportunity set. Accordingly, active managers who are willing to screen for quality and allocate further down the market-cap spectrum are left with a long tail of mid- and small-cap companies, which they have historically used to add value.

DWS Invest ESG Euro Bonds (Short)’s – Silver from Bronze

Evangelia Gkeka

Under our enhanced ratings framework, which places a greater focus on fees and benchmark-relative performance the Morningstar Analyst Rating for DWS Invest ESG Euro Bonds (Short)’s TFC and FC share classes is upgraded to Silver from Bronze. More expensive share classes remain at Bronze, while the most expensive are rated Neutral. The strategy offers exposure to an experienced team, a consistent investment approach and solid long-term returns. Daniel Kittler, an experienced portfolio manager within the DWS EMEA Fixed Income Rates team is the lead manager, and he is supported by Carsten Weins. While the strategy invests mainly in investment-grade euro-denominated debt, it can also include overweightings to the riskier higher-yielding areas of his investment universe.

Downgrades

ASI MyFolio Managed III – Neutral from Bronze

Rajesh Yadav

The departure of Bambos Hambi creates somewhat of a vacuum within ASI’s Multi-Manager team, which is responsible for the MyFolio range. This tempers our view on the fund’s People Pillar rating. Also within the Managed range, the team invests predominantly in in-house offerings, which have had mixed results over the past decade, limiting our conviction on the overall process. We will adjust both the People and Process Pillar ratings to Average from Above Average. The upshot is that the Morningstar Analyst Rating for the strategy’s clean share class is lowered to Neutral from Bronze.

iShares SMI® – Negative from Neutral

Dimitar Boyadzhiev

We lack confidence that the highly concentrated iShares SMI ETF will beat its Switzerland large-cap equity Morningstar Category peers in the long run on a risk-adjusted basis. Ultimately, because of its narrow giant-cap mandate, the Swiss Market Index is an uncompetitive option for investors seeking long-term exposure to large Swiss companies. For this reason, the fund is downgraded to a Morningstar Analyst Rating of Negative.

UBS ETF (CH) SMI® – Negative from Neutral

Dimitar Boyadzhiev

We lack confidence that the highly concentrated UBS SMI ETF will beat its Switzerland large-cap equity Morningstar Category peers in the long run on a risk-adjusted basis. Ultimately, because of its narrow giant-cap mandate, the Swiss Market Index is an uncompetitive option for investors seeking long-term exposure to large Swiss companies. For this reason, the fund is downgraded to a Morningstar Analyst Rating of Negative.

Orbis OEIC Global Equity Standard – Bronze from Silver

Orbis SICAV Global Equity – Bronze from Silver

Bhavik Parekh

Orbis Global Large Cap continues to represent a strong investment proposition for those seeking global equities exposure with a long-term investment horizon. The five experienced managers, under the guidance of William Gray, apply a process that is contrarian by nature but continues to be applied in a disciplined fashion. We therefore retain the People and Process Pillar scores at Above Average. However, the complicated fee structures detract from an otherwise strong team and investment process. Under our enhanced ratings framework, which puts more focus on fees and expected benchmark-relative performance, the strategy’s Morningstar Analyst Rating is downgraded to Bronze form Silver for all share classes.

Note: under the Morningstar methodology different share classes of funds may have different ratings