New Ratings
Eastspring Investments - Asian Bond R – Neutral
Patrick Ge, CFA
Our weak conviction in Eastspring Investments – Asian Bond’s lead manager, together with the recent departure of the team’s head of Asian fixed income, limits this strategy’s appeal. Lead manager Wai Mei Leong has led this strategy since May 2017 following her predecessor’s retirement and has garnered a disappointing track record here. She has 22 years of investment experience, but did not come across as a passionate investor, and her insights have paled in comparison to our preferred managers in the space. The departure of head of Asian fixed income Guan Yi Low in May 2022 warrants further caution, as she was an integral part of the investment process and the main provider of the team’s duration and yield curve views, which Leong generally followed. The investment approach is a benchmark-relative one and combines top-down and bottom-up analysis with a focus on US-dollar-denominated Asian bonds. While organized, the process has no apparent edge compared with rivals and credit selection has yielded mixed results over time. We initiate coverage on Eastspring Investments – Asian Bond with a People Pillar rating of Below Average and a Process rating of Average, resulting in a Morningstar Analyst Rating of Neutral across all share classes, including the clean R share class.
Manulife Global Emerging Markets W Acc USD – Neutral
Samuel Lo, CFA
Manulife Global Emerging Markets benefits from the presence of Kathryn Langridge and Philip Ehrmann, who both have more than 40 years of investment experience. They have comanaged this strategy since its inception in September 2015, and they have a long and solid record managing emerging-markets and Asian equity strategies at other firms in the past. While the duo remains committed to managing money, the strategy added Talib Saifee as an additional comanager in September 2021 as part of succession planning, although we believe more time will be needed before he is ready to take the reins, given his limited portfolio management experience before joining the team in 2019. Also, the slim six-member investment team raises some questions on its ability to stay on top of the vast and fast-evolving emerging-markets universe. The strategy is based on a sensible quality-growth-at-a-reasonable-price approach, and the portfolio managers have remained steadfast to their investment philosophy over the years. That said, its application is fluid and dependent on the managers’ discretion, which reduces the process' repeatability. We initiate coverage on the strategy with the People and Process ratings at Average, resulting in a Morningstar Analyst Rating of Neutral across all share classes.
Janus Henderson Horizon Strategic Bond IU2 USD – Silver
Giovanni Cafaro
Coverage is initiated with a Morningstar Analyst Rating of Silver, in line with the existing coverage of the UK-domiciled version of the strategy. The Janus Henderson Horizon Strategic Bond fund displays strong features including a stable, experienced investment team and a flexible approach that adds value mostly from sector allocation and security-specific analysis. The fund is led by experienced and capable managers, John Pattullo and Jenna Barnard, who have a long history of working together having joined Henderson in 1997 and 2002, respectively. They are directly supported by a suitably resourced team, including credit-focused portfolio manager Nicholas Ware, who joined the team in 2012, as well as two associate portfolio managers and two portfolio analysts, whilst also leveraging the output of the firm’s London-based European credit analysts. The managers apply a long-standing and well-structured bottom-up process, targeting a narrowed-down investment universe, which represents the “higher-quality” section of the fixed income spectrum. Furthermore, they use a range of derivatives across the rates and credit markets to actively manage portfolio duration and credit risk, as well as expressing ideas. This, coupled with the managers’ deep understanding of the economic cycle, has resulted in a strong risk-adjusted return profile for the strategy since its inception.
Upgrades
Capital Group New Perspective Z – Gold from Silver
Natalia Wolfstetter
Capital Group New Perspective impresses with its seasoned manager team, proven approach, and a parent company that serves its investors exceptionally well. The fund remains one of our highest convictions within the category. Although we retain both the People and Process Pillar scores at High and Above Average, respectively, rating changes among rivals in its category mean that the fund’s Morningstar Analyst Rating gets an upgrade from Silver to Gold for its Z share class. Pricier share classes are rated Silver to Bronze.
Downgrades
Harding Loevner Global Equity – Bronze from Silver
Natalia Wolfstetter
Harding Loevner Global Equity still has a strong parent and personnel. But its Process rating has been lowered to Average from Above Average for various reasons, so the Morningstar Analyst Rating drops to Bronze from Silver for all share classes. The process is sound and distinctive, and it has earned strong long-term results at Harding Loevner International Equity. But this strategy's managers tend to implement the approach in a less valuation-conscious and more growth-driven manner than that strategy's managers do. Moreover, while that strategy concentrates on stocks outside the United States, this one normally invests around 45% to 60% of its assets in U.S. equities. And according to Morningstar's attribution data, stock selection has been weak in the U.S. in recent years, which has undermined short- and mid-term returns and raises questions as to whether the firmwide approach works as well for U.S. stocks as it does for foreign equities.
Jupiter Income Trust I Acc – Bronze from Silver
Teodor Dilov
Following our most recent review of Jupiter Income Trust, there have been no changes at a strategy level. We retain our conviction in the talented team led by an experienced manager and the strong and consistently applied process, both rated at Above Average. However, the Parent score for Jupiter was recently downgraded to an Average from Above Average, which led to the strategy’s Morningstar Analyst Rating being downgraded to Bronze from Silver for the I clean share class.
Rerated from Under Review
Allianz US Short Duration High Income R – Neutral from Under Review
Elizabeth Templeton
Allianz US Short Duration High Income faces some uncertainty after the SEC charged subadvisor Allianz Global Investors with fraud and disqualified it from providing advisory services to US-registered investment funds in May 2022. That shouldn’t affect this strategy’s management, though. The current San Diego-based team has transferred to Voya Investment Management, which, as of July 2022 now serves as the strategy’s investment manager. This ensures the strategy’s experienced but small investment team remains in place for this unique high-yield offering. It receives in a Morningstar Analyst Rating of Neutral for its cheapest share classes and a Negative for its pricier shares.
Fidelity China Focus Y-Acc USD – Neutral from Under Review
Claire Liang, CFA
Nitin Bajaj will take over Fidelity China Focus from Jing Ning on 30 September 2022. Ning has 23 years of experience and has led the strategy since November 2013 with stellar returns, and her Chinese equity expertise will be missed. Bajaj brings 19 years of experience and is an established value investor with robust track records on his Indian equity and Asian small cap mandates. While we appreciate that he has a proven track record in adding value in China for his regional mandate, most of the value added came from smaller companies. We have yet to build conviction in his investment capability in the large-cap China equity space, which will continue to be the strategy’s main hunting ground. Bajaj brings his own investment process, focusing on good businesses that are run by competent and honest managements with a margin of safety in the price. The same investment philosophy has yielded strong returns on Bajaj’s Asian small cap strategy but its efficacy on this dedicated China equity mandate is untested. As such, we downgrade both the People and Process ratings to Average from Above Average. This leads to a Morningstar Analyst rating of Neutral for all share classes of this strategy. The strategy was previously Under Review.
Moved to Under Review
TCW Emerging Markets Sustainable Income – Mike Mulasch
Templeton Global Balanced is under review because of a manager change – Thomas De fauw
