Downgrades
DWS Invest ESG Euro Bonds (Short) FC – Bronze from Silver
Jeana Marie Doubelll
The managers behind DWS’s Invest ESG Euro Bonds (Short) strategy have extensive experience and an increased focus on better ESG scoring by European companies issuing bonds is broadening the fund’s universe, creating further opportunities to generate alpha. We continue to view the process being implemented here favourably and retain the People and Process Pillar scores at Above Average. However, competitive fee changes amongst rivals in the category mean that the fund’s Morningstar Analyst Rating is downgraded from Silver to Bronze for its clean FC share class, while the IC100 share class maintains its Silver rating. Pricier share classes are rated Bronze to Neutral depending on fees.
Matthews Asia Dividend I USD Acc – Bronze from Silver
Hunter Beaudoin
Matthews Asia Dividend's recently diminished capabilities warrant a downgrade of its Morningstar Analyst Rating to Neutral from Silver for its retail share classes, while its institutional share classes are downgraded to Bronze from Silver. While this strategy's management team, led by key decision-maker Yu Zhang, has shown some continuity over the years, relentless personnel turnover and shrinking resources on the broader investment team have lessened our conviction. The analyst team has been reduced by half over the past five years, resulting in a downgrade of the People rating to Average from Above Average. The strategy has failed to reliably achieve its goals of providing investors with current income in excess of the MSCI AC Asia Pacific Index, as evidenced by its consistently lower dividend yield over the five years ended June 2022. The higher volatility than the prospectus benchmark is another deviation from the strategy’s stated investment objective. As a result, we have downgraded the Process rating to Above Average from High.
Rerated from Under Review
Allianz Income and Growth – Neutral from Under Review
Thomas De Fauw
Allianz Income and Growth was placed Under Review after the SEC charged advisor Allianz Global Investors with fraud and disqualified it from providing advisory services to U.S.-registered investment funds in May 2022. This has not changed the strategy’s management and we kept the People score at Above Average and the Process score at Below Average, reinstating the Morningstar Analyst Rating for all the fund’s share classes at Neutral. The current San Diego-based Income and Growth team transferred to Voya Investment Management and still serves as the strategy's advisor. While the strategy's tenured, proven team remains intact, so does its questionable structure whereby the fund invests evenly across high-yield bonds, convertible bonds, and equities with a covered-call overlay. This bucketed approach does not produce a balanced portfolio as the three sleeves are highly correlated, especially during periods of market stress.
