Ollie Smith: Morningstar keeps a keen eye on the fund universe as you know. [Our UK head of fund research] Jon Miller is here with me to discuss the three strategies that have picked his interest in recent days.
Jon, good morning. Let's get straight to it. How are you and what's the first fund and why is it interesting?
Jonathan Miller: Good morning, Ollie. Good to be here. So, we're going to go through three funds today. We'll start with JPM Asian Growth, so run by JP Morgan. It's run by two managers, Mark Davids and Joanna Kwok. They took over in May 2015. There's a large analyst team there with JP Morgan. It's actually one of the largest teams serving the region. The managers themselves, they've both got more than 20 years' experience, and they consistently demonstrated impressive stock picking over the years they've been running money.
Now, for this particular fund, what you see is a quality growth approach. And they use the team's research to help them with their stock picking. So, what they're generally looking for are attractive industries that have got structural growth. There is an element of quality in the franchises and track records of management of solid execution. So, recently, performance has been a bit held back, but that's mainly down to style. The last few months, value has come back into vogue. So, we'd expect that kind of profile. But over the long term, we've seen excellent risk-adjusted returns. Our view on the people and process, they're both above average. And overall, that means the fund has got a Morningstar Analyst Rating of Bronze.
OS: And fund number two is a little bit more contrarian, isn't it? Tell me more.
JM: Yes, a bit different. We're going to go to a bigger emerging market. So, Lazard Emerging Markets, looking at the global emerging market space, and this fund has been run by James Donald since 2001. He has got a couple of co-managers, and they've been part of the team and worked their way up over the years. So, they've worked together for a long time. So, on that kind of difference in the process here, there's price discipline and contrarian in nature, and that can hurt, especially when markets are on a big tear. We saw that in 2020 when actually the Covid-19 recovery was generally led by tech stocks. There can be some painful times when you're out of that sort of area, and this is what this strategy sat out of. It can be difficult, but Donald was happy to sit that out.
So, the fund has got a lower price earnings ratio than the market, and it's performed well over the last year because actually some of those contrarian plays have come back into vogue – so, being overweight Brazil, underweight China, that's helped, and that sort of positioning is actually different from a lot of the peers you see. So, overall, this does need patience over a market cycle, and it holds a Morningstar Analyst Rating of Bronze.
OS: Fantastic. And finally, you're taking me to North America I gather. What's going on there?
JM: That's right. We're diving into the smaller company space, so the Aberdeen North American Smaller Companies Fund. It's actually a fund that we recently initiated coverage on. So, the manager there is called Ralph Bassett. He has been the lead of the strategy since 2008. There has been a bit of a turnover of the team in the past. That's subsided, but Bassett has been a constant. So, there's a quality element to the approach here, and they like finding predictable, durable businesses, so an eye on cash flows, a history of profitability and balance sheet strength. So, what Bassett tends to do is avoid paying large premiums for growth.
So, you see more firms that have got a steady growth profile and that means industrials, financials, consumer staple stocks tend to be key parts of the portfolio, whereas biotech that can be a bit binary in outcomes doesn't feature really in the portfolio. So, downside protection has generally been strong, but it can underperform when speculative parts of the market are rallying, and you've seen that a bit more recently, back-end of last year and into this year. So, we see some positives. We initiated coverage on this fund with a Morningstar Analyst Rating of Bronze.
OS: Fantastic. For more on fund research from our fund research team, check out our weekly ratings updates on Morningstar.co.uk. Until next time, I've been Ollie Smith for Morningstar.
