Just like the stock market, the rating of a fund can change as the world evolves.
Morningstar’s analysts are always looking at how funds under our coverage are both performing and evolving. Our analyst rating is the summary of our forward-looking analysis, and when we make discoveries, funds can be up- or downgraded, based on whether discoveries are favourable or not.
So far this year, analysts have upgraded eight UK-domiciled funds from four companies: Fidelity, Janus Henderson, Amati Global Investors and Standard Life Aberdeen. The funds range from UK small-cap to US large-cap, but what they have in common is that they all have made noticeable improvements.
Standard Life Aberdeen
ASI Europe ex UK Smaller Companies was upgraded from Bronze to Silver in June. Morningstar likes the experienced manager Andrew Paisley, who took over as head of the smaller-companies team in March 2020 but has been part of the management since 2014. The portfolio holds between 40 and 50 stocks with a bias towards momentum, growth and quality, all assessed using a 13-factor quant model. So far this year, the fund has returned 21.42%, similar to its 2020 total of 23.78%. It has remained above the index and its peers since 2015, with an overexposure to industrials and underexposure to technology. Its five-year annualised return is 14.17%.
Amati Global Investors
In March, TB Amati UK Smaller Companies was also upgraded from Bronze to Silver. Amati was established as a boutique focused on smaller companies and AIM VCT (alternative investment market venture capital trust) investing after a buyout from Noble Group in 2010. However, the strategy has been running since 2000 with Paul Jourdan, Amati co-founder, at the helm. Stocks are selected from an index, combined with its knowledge of the smallest companies through its AIM VCT, means they have great knowledge of the area. It holds 84 companies and has been outperforming over recent years. This year it has returned 19.20% against 7.98% growth in 2020, and its 5-year annualised return is 17.62%.
Janus Henderson
Janus Henderson has seen two of its funds upgraded. Both European Focus and European Selected Opportunities have climbed from a Neutral rating and onto the podium with Bronze. The February upgrade is because of Morningstar’s conviction in John Bennett and the consistent application of his approach over multiple market cycles. The team combines bottom-up and top-down research, and the two portfolios are very similar, with an identical top 10. The Focus fund holds 42 stocks and has returned 15.12% this year, while the Selected Opportunities fund holds 51 stocks and has returned 14.45%. The annual return and 5-year annualised return hover at the 10% mark for both funds.
Fidelity
The fund company that has seen the most funds upgraded this year is Fidelity – four of its funds have been upgraded, across categories. Index US and Institutional Emerging Markets have both been upgraded from Bronze to Silver, while Special Situations and Sustainable Asia Equity have been upgraded from Silver to Gold.
The US index fund has grown 18.81% in 2021 following 13.52% in 2020. On average, it has returned 15.39% year-on-year for five years. Its attractive fees earned it an upgrade in March this year. The emerging markets fund has had a slower year, unsurprising considering the number of Chinese stocks it holds, as one of the worst-performing markets this year. It has grown 1.39% this year, against 23.51% last year and 10.72% annualised over five years. It was upgraded in July based on the teams collective work to create a robust core – and while it has had a slow year, it is performing significantly above the index.
The special situation fund is what Morningstar analyst Fatima Khizou calls “an outstanding all-cap offering”. It has grown 22.45% this year after a negative 2020 (-12.64%) on 105 stocks. Its experienced manager Alex Wright impresses with a rigorous investment process focused on value, targeting unloved stocks. Over the past five years, it has returned 6.53% on an annualised basis, and it earned its Gold status in May. The Sustainable Asia Equity fund received its Gold rating in February, but like the emerging markets fund, it has not managed to provide the same returns as last year: returning -2.19% this year against 24.97% in 2020. The annualised return is 11.80%, and Morningstar's associate director Andrew Daniels says the 68-stock fund was due an upgrade.
