Morningstar Fund Ratings: The Weekly Update

Jupiter Dynamic Bond ESG D EUR Acc – Silver

We initiate coverage of Jupiter Dynamic Bond ESG with a Morningstar Analyst Rating of Silver for the clean share class D EUR Acc. The cheapest share class is rated Gold, while the most expensive share class is rated Bronze. The People and Process Pillars are rated High and Above Average respectively. The strategy benefits from the experience of its portfolio manager duo Ariel Bezalel and Harry Richards and the depth of its analyst team, as well as the same flexible investment process that has generated strong long-term absolute and risk-adjusted returns for its Jupiter Dynamic Bond sister fund. Jupiter Dynamic Bond ESG is the SFDR Article 8 version of Jupiter Dynamic Bond. Although the ESG version has only been launched in January 2022, we gain comfort from the fact that it will be managed by the same team and follow the same process with very similar high-level asset allocation, key risk characteristics, duration, and yield, as Silver-rated Jupiter Dynamic Bond. The main differences in positioning will come from ESG exclusions and best-in-class approach of the ESG version. However, given the wide opportunity set, which consists of high-yield bonds, investment-grade bonds, government bonds, emerging-markets debt, and to a lesser extent currencies and derivatives, we don’t feel that the ESG version is constrained.

Evangelica Gkeka

Rathbone Multi-Asset Defensive Growth S Acc – Bronze

Rathbone Multi-Asset Dynamic Growth S Acc – Bronze

Rathbone Multi-Asset Enhanced Growth S Acc – Bronze

Rathbone Multi-Asset Strategic Income Inc – Bronze

These four funds form part of Rathbone’s Multi-Asset Portfolio range alongside Rathbone Multi-Asset Total Return and Rathbone Multi-Asset Strategic Growth, whose existing Bronze Morningstar Analyst Ratings were also affirmed. In total, the range spans five risk profiles plus an income offering in the middle risk profile. Management of the range has been led by the seasoned David Coombs since 2009. Coombs has more than two decades of multi-asset investing experience at various organisations and since 2015 has been supported here by Will McIntosh-Whyte. The two have had a successful partnership since then, and also make good use of internal analyst teams and lean on other fund managers within Rathbone, supporting a People pillar rating of Above Average across all four funds. The managers employ a disciplined investment process combining their top-down asset-allocation views with a fundamental/valuation-focused security selection approach. Both managers are involved in all aspects of the process: defining the macro backdrop, security selection, portfolio construction, and risk management. This leads to a Process pillar rating of Above Average for Rathbone Multi-Asset Defensive Growth and Rathbone Multi-Asset Strategic Income. The most adventurous funds, Rathbone Multi-Asset Dynamic Growth and Rathbone Multi-Asset Enhanced Growth, receive a Process pillar of Average due to the uniform approach to foreign currency hedging across the range that leaves these funds most prone to divergence from their category. All four receive a Morningstar Analyst Rating of Bronze.

Tom Mills

Upgrades

Schroder ISF Global Sustainable Growth C Acc SGD – Silver from Bronze

Despite the departure of comanager Katherine Davidson, we retain our conviction in this team as she has been adequately replaced and highly regarded comanager Charles Somers remains at the helm. We appreciate the team’s structure, which warrants effective use of the firm’s comprehensive analyst resources. The approach, that was begun in November 2017 after the previous demographic-themed strategy was repositioned, remains unchanged. Its process is well-established and structured and focuses on identifying well-entrenched companies with underappreciated growth prospects, although the team also has room for shorter-term opportunistic plays, which can be in more-cyclical businesses. Although we retain both the People and Process Pillar ratings at Above Average, rating changes among rivals mean that the fund's Morningstar Analyst Rating jumps to Silver from Bronze for its clean C Acc SGD share class. All other share classes maintain their Morningstar Analyst Ratings ranging from Neutral to Silver.

Ronald van Genderen, CFA

Downgrades

Fidelity Emerging Market Debt Y-Acc – Neutral from Bronze

While we continue to like the blend of in-depth fundamental analysis on country and credit and quantitative research of Fidelity Emerging Market Debt, we have increased concerns regarding its risk management. The strategy has a penchant for making contrarian and out-of-favour bets, and the market selloff in 2022 exposed some costly missteps in credit risk control, where the team was too enticed by depressed valuations and tolerated a higher-than-intended beta. The managers have since reinstated more discipline in risk control by reducing the portfolio’s beta and some larger overweight positions. However, we want to observe whether the discipline will persist and the impact on results over a longer period. This prompted us to downgrade its Process to Average from Above Average. Meanwhile, a capable management team continues to support an Above Average for the People Pillar. As a result, the strategy’s cheaper share classes saw a one-notch downgrade in their Morningstar Analyst Ratings to Bronze from Silver or to Neutral from Bronze, as was the case for its clean Y-Acc share class, while its more expensive share classes remained at Neutral.

Bryan Cheung, CFA

AB – American Income Portfolio I USD – Neutral from Bronze

AB – American Income Portfolio's long-standing credit barbell approach continues to be led by experienced managers, but elevated and persistent turnover across its supporting cast dampens our confidence in this offering, resulting in a downgrade in its People Pillar rating to Average from Above Average. The Process Pillar retains its Above Average rating as the strategy continues to apply its time-tested approach underpinned by a blend of fundamental and quant research and benefits from a wider flexibility than peers. The overall Morningstar Analyst Rating is downgraded to Neutral from Silver on its cheapest share classes, while its clean I USD share class is downgraded to Neutral from Bronze. Its priciest chare classes are rated Negative. 

Sam Kulahan, CFA

Jupiter Strategic Bond I – Silver from Gold

We have downgraded the Morningstar Analyst Rating for this strategy's clean share class (I) to Silver from Gold. Other share classes range from Silver to Bronze. The Parent Pillar rating was recently downgraded to Average from Above Average, and is the contributory factor. The People and Process Pillar ratings remain unchanged at High and Above Average respectively. Jupiter Strategic Bond still benefits from the experience of its lead portfolio manager Ariel Bezalel, the support provided from comanagers Harry Richards and Vikram Aggarwal as well the team of 17 sector-focused credit analysts, the continuity in the execution of its flexible investment process, and strong absolute- and risk-adjusted returns since inception.

Evangelica Gkeka

Rerated from Under Review

FTF Martin Currie UK Equity Income Fund W – Silver from Under Review

Following the group's announcement that Colin Morton will retire at the end of this year, the People pillar was downgraded to Above Average from High. Taking over is Ben Russon, who has been working with Morton since 2013. We retain our conviction in the team and note that the transition has been well-planned and executed, but also consider the loss of experience that Morton's departure will present. The process retains is Above Average rating on the basis of consistent execution and demonstrated value-add to investors over the long-term. The overall Morningstar Analyst Rating is downgraded to Silver from Gold as a reflection of the People downgrade. The fund was previously placed Under Review. 

Teodor Dilov