New Ratings
CT Responsible UK Income 2 – Bronze
Bhavik Parekh, CFA
CT Responsible UK Income is a solid option for investors looking for exposure to an income portfolio of UK equities with a sustainable bias. We have good conviction in the manager, Catherine Stanley, who heads the seven-strong global small-cap team. This part of the market-cap scale is relevant, as while the portfolio does still hold stocks at the larger end of the UK market, a significant portion of the FTSE 350 Index is deemed unacceptable on environmental, social, and governance screening. We acknowledge that, despite an otherwise good process, sustainable-income investing is difficult within the UK equity universe. However, we still see enough merits to award the clean share class a Morningstar Analyst Rating of Bronze. Other share classes are rated Neutral.
Eastspring Investments - US Corporate Bond R – Neutral
Jeana Marie Doubell
Eastspring Investments US Corporate Bond combines a modest approach to risk-taking with a penchant for bottom-up company research. Its institutional C share class earns a Morningstar Analyst Rating of Bronze, while its clean R share class and pricier share classes are rated Neutral. Lead manager Mark Redfearn has been at the helm here for the strategy’s entire 15-year history, since 2007. His longevity is emblematic of subadvisor PPM America’s investment culture, which aims to promote stability by nurturing talent in-house and promoting from within, while putting analysts on equal footing with portfolio managers. The manager aims to outperform his benchmark, the Bloomberg US Credit Index, through security selection and moderate sector bets within the US investment-grade corporate bond universe. This strategy’s risk-aware approach and deep credit research capabilities are a strong combination, earning it Above Average scores for both People and Process.
Eastspring Investments Unit Trusts - Singapore ASEAN Equity – Neutral
Hunter Beaudoin
Recent team turnover and process changes have limited our conviction in Eastspring Investments Unit Trusts - Singapore ASEAN Equity. After two departures in early 2022, including this strategy’s lead manager and sole supporting ASEAN equity analyst, newly appointed lead manager Bryan Yeong has had to shoulder much of the stock coverage and management responsibilities for multiple other ASEAN equity mandates. Comanager and Eastspring head of growth equities John Tsai is also named here but takes on more of a figurehead position and is primarily focused on his team oversight responsibilities. He plans to step off from the fund eventually. Two new team members were hired in June 2022 as replacements and to alleviate Yeong’s workload, but more time is needed to build conviction in their portfolio management capabilities, a position neither has held before. Moreover, Yeong has only led this offering since April 2022 and has produced mediocre records on his managed strategies. As a result, the strategy earns a People rating of Below Average. The unit trust follows a sensible process that aims to generate outperformance against its custom benchmark of 50% FTSE ST All-Share Index and 50% FTSE ASEAN (ex-Singapore) Index, but adjustments made in mid-2020 to tilt the portfolio more toward quality growth at a reasonable price from its historical value bias seem to have had a minimal effect. Owing to a lack of evidence of the process' effective implementation and ability to add value, the strategy earns an Average Process rating. This results in a Morningstar Analyst Rating of Neutral for the strategy.
Eastspring Investments Unit Trusts - Singapore Select Bond – Neutral
Patrick Ge, CFA
Eastspring Investments Unit Trusts - Singapore Select Bond benefits from a seasoned duo with a long partnership history, but the appointment of its lead manager as the firm’s new head of Asian fixed income brings some workload concerns. Lead manager Danny Tan has 22 years of investment experience and has led this strategy since its 2011 inception, garnering a strong track record. Tan came across as a confident investor who exuded fluency when discussing the portfolio’s holdings at a May 2022 meeting. He is joined by longtime comanager Wei Ming Cheong, who sports 26 years of investment experience. However, the departure of the team’s head of Asian fixed income in May 2022 warrants further caution, especially since she was replaced by Tan. Tan’s increased workload and degree of involvement on this strategy are areas to watch. The investment approach combines top-down and bottom-up analysis and aims to maximize returns while offering investors steady income, leading to a structural tilt toward credit. The corporate stake consists primarily of SGD bonds with a leeway to invest up to 30% in non-SGD bonds—mainly USD Asian corporates, which are hedged back to SGD. While organized, the process is not distinct compared with rivals. We initiate the strategy with both People and Process ratings of Average, which merits a Morningstar Analyst Rating of Neutral across all share classes.
Schroder International Selection Fund US Large Cap C – Bronze
Bhavik Parekh, CFA
Schroder ISF US Large Cap is run by Frank Thormann, with support of the global equity team and, in turn, the broad analytical resources Schroders has to offer. This embodies more than 100 analysts located in 11 countries around the world, who provides considerable support for fundamental stock research. The managers efficiently leverage this comprehensive resource via a team of 11 sector specialists responsible for identifying the analysts’ best ideas. The process is typically focused on identifying well-entrenched companies with underappreciated growth prospects—that is, core ideas—but they also make room for shorter-term opportunistic plays, which can be in more-cyclical businesses. This process is well established and structured, , and we expect stock selection to be the main driver of excess returns, as has been the case so far under Thormann. We initiate a Morningstar Analyst Rating of Bronze for the C clean share class. Other share classes range from Bronze to Neutral depending on fees.
Upgrades
Stewart Investors Indian Subcontinent Sustainability B – Gold from Silver
Ramanand Kothari
Our increased confidence in the Stewart Investors Indian Subcontinent Sustainability strategy’s distinct, time-tested, and valuation-prudent investment approach leads to an upgrade in the Process rating to High from Above Average. Its robust, well-codified investment framework has been consistently applied for almost three decades and differentiates it from peers. Overall, this unique, long-term, and absolute return focused approach, along with strong implementation has produced solid returns across market cycles. Lead portfolio manager- Sashi Reddy continues to impress us and is one of the strongest managers in the region. He is backed by the well-regarded Sustainable Funds Group within Stewart Investors, which sports a best-in-class investment culture, and the strategy continues to earn a People rating of High. The Morningstar Analyst Rating of the less expensive B share class has been upgraded to Gold from Silver. The more expensive A share class has also been upgraded to Gold from Silver.
Downgrades
PineBridge Global Dynamic Asset Allocation Y – Neutral from Silver
Matias Möttölä, CFA
We are downgrading the Morningstar Analyst Rating of PineBridge Global Dynamic Asset Allocation’s Y share class from Silver to Neutral. The strategy continues to be managed by a well-staffed team, led by experienced Michael Kelly. Although the group has been largely stable, one senior member left in early 2021, and there have been role changes and relocations with the more junior members of the team. This has resulted in the East Asian offices becoming less prominent. The multi-asset group takes views on more than 80 asset classes, and we are doubtful whether the information from within PineBridge adds enough value, as implementation of the process has been disappointing. As a result, our People Pillar rating is lowered to Average from Above Average.
Rerated from Under Review
Abrdn UK Ethical Equity I – Bronze from Under Review
Bhavik Parekh, CFA
Abrdn has announced that long-term lead manager Lesley Duncan will be standing down as portfolio manager of abrdn UK Ethical Equity in September 2022. Current deputy portfolio manager Rebecca Maclean will be promoted to lead manager. The continuity provided by Maclean and a sound process that we expect to continue under her leadership means after a period of review, we reinstate the Morningstar Analyst Rating of Bronze for the clean I and P1 share classes. Other costlier share classes earn a Neutral Rating.
Morgan Stanley Investment Funds - Emerging Markets Corporate Debt Z – Neutral from Under Review
Evangelia Gkeka
After a period of review, Morgan Stanley Emerging Markets Corporate Debt retains its Morningstar Analyst Rating of Neutral for the clean share class (Z), while some more-expensive share classes are rated Negative. In July 2022 Morgan Stanley had announced that Warren Mar, head of emerging-markets corporate debt strategy and lead manager of the fund since 2012, will retire at the end of the year. Effective July 2022, Budi Suharto, who joined the team in 2014 as a corporate credit analyst and was promoted by Mar to comanager here at the end of 2019, has become lead manager. Mar's retirement also coincided with a team reorganisation. Following the integration between Eaton Vance and Morgan Stanley Investment Management, Akbar Causer, who previously managed emerging-markets corporate-bond portfolios at Eaton Vance, is taking over Mar’s role as head of the emerging-markets corporate team. He has also been named as comanager here supporting Suharto. Our People Pillar rating remains unchanged at Average. The retirement of Mar leaves a gap in terms of experience, but new lead manager Suharto has been involved with the strategy and worked closely with Mar for several years. The team reorganisation also helped analyst resources, especially on the emerging-markets sovereign side, where there is now a bigger pool of local specialists.
