It is undeniable that the past year has been a tough one for most, and this is no different for the fund industry. While 2021 has so far seen the Morningstar Analyst Rating upgraded on eight funds, twice as many have moved the opposite way.
So far in 2021, some 19 funds have had their Morningstar Analyst Rating downgraded. The rating, a summary of how our analysts believe the fund will perform in the future compared to its peers, is based on a fund’s process, people and fund company parent, and can be up- or downgraded based on discoveries.
Let's look at some of the biggest changes, and the funds which lost their coveted Gold rating:
Invesco Monthly Income Plus UK
The monthly income fund dropped two rungs from Silver to Neutral in June when the retirement of long-time lead managers Paul Causer and Paul Read – two of the longest-serving bond managers in the industry - was announced. But Invesco Monthly Income Plus does have some positives for investors seeking a fund that emphasises high monthly income with modest capital appreciation, according to Rajesh Yadav, senior analyst at Morningstar. It has a lower risk profile than the distribution strategy, at least 80% of assets are invested in bonds with a higher-yielding securities bias, and 20% equities. It has returned 5.40% year to date against 6.70% in 2020, averaging a stable 5.09% over the past 5 years.
Allianz Gilt Yield
Another fund that has dropped two rungs due to a change in management is Allianz Gilt Yield. It has had a Silver rating since August 2020 (before that, Bronze) but was downgraded to Neutral in May. Morningstar’s senior analyst Louise Babin says the loss of lead manager Kacper Brzezniak is a loss for an already small team – and the recent confirmation of new two portfolio managers has not yet been enough to restore its rating. The fund aims to add value through a yield-curve and duration positioning and off-benchmark securities accounting for up to 20%. The fund is down 2.83% this year, but returned 9.55% in 2020. Its 5-year annualised return is 2.25%. Babin adds that the long-term performance is still very strong for such a strategy where alpha drivers are so very limited.
JPM US Equity Income
The JPMorgan US Equity fund, led by Care Hart, has been Gold-rated across all share classes for a while – but its most expensive class was downgraded to Silver in June because of the price. The three-person management team boast 28, 23 and 32 years in the industry, with a time-tested approach to equity income. The fund focuses on quality firms yielding at least 2%, and a long-term view keeps portfolio turnover and trading costs low. It holds about 90 stocks and has one of the highest exposures to stocks with a wide or narrow economic moat rating in the large-value category. It has had a stellar 2021 so far, growing 19.16% after returning -1.40% in 2020. The annualised return for the fund is 11.04%.
HSBC Japan Index Retail and HSBC FTSE All-World Index Institutional
HSBC has seen two of its funds downgraded this year – the Japan tracker fund and the world tracker for institutional investors. Both held a Gold rating at the end of 2020 but were downgraded in June and April respectively. Morningstar analyst Kenneth Lamont says the Japan fund is one of the best trackers in a category that has performed well, as it offers a representative cap-weighted exposure to 500 equities. It returned 10.44% last year but the market has this year struggled, up just 0.54% so far. Its longer-term return is somewhat below last year, averaging 7.19% over the past five years. Some other share classes retain a Gold rating for having a cheaper fee.
The institutional all-word tracker fund also saw its time with a Gold rating come to an end, and its Silver-rated retail siblings have been downgraded to Bronze. However, Morningstar still believes the fund provides low-cost, comprehensive access to both developed and emerging market stocks. The fund represents about 90-95% of the global equity market and has provided stable returns both this year (13.51%), last year (12.76%) and on a five-year annualised basis (12.72%).
