New Ratings
Colchester Local Markets Bond USD Unhedged I Acc – Bronze
This strategy boasts a seasoned and remarkably stable team and well-structured process, earning Morningstar Medalist ratings of Silver for its Ireland-domiciled UCITS vehicle’s cheapest and Bronze for its more expensive share classes, including the clean USD Unhedged I Acc share class. Ian Sims and Keith Lloyd, seasoned professionals with experience spanning four decades each, have been at the helm of this local markets strategy since its inception. The managers follow a team approach with support from 11 research analysts, averaging nine years of firm tenure and more than two decades’ experience, who each cover both emerging and developed market countries. This investment team has been extremely stable with only two departures in the history of the firm. The investment process focuses on determining inflation-adjusted real valuations, whether for rates or currency positioning, and investing in the most attractive opportunity set. Portfolio construction is a twofold process; the team uses a quantitative model to construct a local rates portfolio (allocating between countries’ nominal, inflation-linked and quasi-sovereign debt) and a separate currency portfolio. The two model portfolios are then combined to generate the fund’s final allocation. The team expects roughly two thirds of its outperformance relative to its JPM GBI Emerging Markets Global Diversified Index benchmark to come from bond selection and one third from currency positioning. The strategy can take fairly concentrated country exposures of between 20% and 25% of portfolio assets, though these risks have been managed responsibly in the past.
Elbie Louw
RobecoSAM Euro Credit C EUR – Silver
RobecoSAM Euro SDG Credits benefits from seasoned management, deep credit analyst resources, and a flexible strategy that draws on the firm's robust fundamental research and risk-management capabilities. Its cheaper and the clean C EUR share classes earn Morningstar Medalist Ratings of Silver while more expensive share classes rated Neutral as we initiate coverage. Portfolio managers Jan Willem de Moor and Peter Kwaak, who have been lead managers here since the strategy’s 2010 inception, are experienced investors boasting almost 20 years firm tenure each. The duo also leads the charge at the Gold-rated Robeco Euro Credit Bonds strategy with CIO of fixed income and sustainability, Victor Verberk. The global credit team includes a growing bench of investment grade portfolio managers and 23 credit analysts boasting an average of 18 years’ industry experience (while the majority have been with the group for a decade or more). This strategy replicates the proven investment process of its sibling strategy, Robeco Euro Credit Bonds, with the addition of a sustainability overlay. Only issuers that are assessed as making a neutral or positive contribution towards the UN’s Sustainability Development Goals (SDGs) under Robeco’s proprietary SDG framework are eligible for investment. On average, the sustainability criteria reduce the investable universe by roughly 20 to 25 percent compared to that of the euro credits strategy. Where the Robeco Euro Credit Bonds strategy can add credit market risk through either index-linked or single issuer credit default swaps, the sustainability mandate limits the team to only single-issuer credit default swaps.
Elbie Louw
RobecoSAM Global SDG Credits CH EUR – Silver
RobecoSAM Global SDG Credits benefits from seasoned management, the support of an expanding group of corporate bond experts, and a flexible process that draws on the firm's robust fundamental research and risk-management capabilities. Its cheapest IE Euro share class and its clean CH EUR share class earn a Morningstar Medalist Rating of Silver, while more-expensive share classes are rated Bronze and Neutral. The strategy benefits from the experience of managers Victor Verberk and Reinout Schapers. The pair, who also manage Gold-rated Robeco Global Credits, have been at the helm here since the strategy’s April 2018 inception. Verberk and Schapers boasts roughly two decades of experience each and both have been with the firm for a decade or more. Verberk was promoted to the role of CIO of fixed income and sustainability in 2020 but relinquished his administrative and team management responsibilities in February 2023 in order to devote his time to investment management. Schapers also leads the emerging markets credit strategy and other sustainable credit strategies. The duo is backed by a strong supporting cast of 23 experienced credit analysts. This strategy replicates the proven investment process of its sister strategy, Robeco Global Credits, with the addition of a sustainability overlay. Only issuers that are assessed as making a neutral or positive contribution towards the UN’s Sustainability Development Goals (SDGs) under Robeco’s proprietary SDG framework are eligible for investment. Where the Robeco Global Credits strategy can add beta exposure through either index-linked or single issuer credit default swaps, the sustainability mandate in force here limits the team to only single issuer credit default swaps. The investment process is a combination of top-down credit market positioning and fundamentally driven bottom-up security selection.
Elbie Louw
RobecoSAM SDG Credit Income CH EUR – Bronze
RobecoSAM SDG Credit Income benefits from seasoned management, the support of an expanding group of corporate bond experts and a flexible process with a sustainability focus that draws on the firm's robust fundamental research and risk-management capabilities. Its cheapest and clean CH euro-hedged shared class earns a Morningstar Medalist Rating of Silver, with its more expensive share classes rated Bronze or Neutral. Portfolio managers Victor Verberk, Reinout Schapers and Evert Giesen are at the helm of the strategy. Verberk and Schapers have led the fund since its April 2018 inception, with Giesen joining the duo in June 2020. Verberk, was promoted to Robeco’s CIO of fixed income and sustainability in 2020, but still devotes the majority of his time to investment management. Schapers also co-manages the flagship Robeco Global Credits strategy with Verberk and leads an emerging markets credit strategy. While Giesen takes care of day-to-day management here, Verberk leads the top-down positioning of the strategy with Schapers and Giesen doing the heavy lifting on security selection. However, this is the first income-focused strategy from this credit team. The supporting cast of credit analysts, which covers both investment-grade and high-yield bonds, has also grown in recent years and currently boasts 23 members. The benchmark-agnostic strategy aims to provide investors with a consistent income by targeting a yield in excess of an investment grade credit portfolio. Roughly one third of assets is invested in investment grade credit, high yield credit and emerging markets debt, respectively. Only issuers that Robeco’s sustainability analysts believe will make a neutral or positive contribution towards the UN Sustainability Development Goals (SDGs), are eligible for investment here.
Elbie Louw
Upgrades
AXA World Funds Sustainable Equity QI F Cap EUR – Gold from Silver
AXA IM Sustainable Equity continues to prove itself as a best-in-class systematic global equities strategy Its skilled and experienced team running a highly rated and differentiated process that has delivered consistent outperformance over time. The team managing the strategy has a long track record in systematic and factor-based investing. Head of equity QI Gideon Smith and CIO Ramkumar Rasaratnam are well supported by key senior professionals in the team, together with large securities and environmental, social, and governance research teams. The strategy combines a systematic low-volatility, high-quality skew with favorable ESG characteristics and a focus on reducing downside risks. Using the MSCI All Country World Index, this fund ranks each stock based on low volatility and quality factors. The strategy earns our highest conviction based on its skilled team, superior systematic global equities process and its exceptionally low fees, making it a strong consideration for the core of an investor’s global equities allocation. As such, we upgrade the strategy's Process rating to High from Above Average, resulting an upgrade to the Morningstar Medalist Rating of Gold from Silver.
Shamir Popat
First Sentier Investors - Stewart Inv Global Emerging Markets Leaders B GBP – Silver from Bronze
Stewart Investors Global Emerging Markets Leaders III USD Acc – Silver from Bronze
The strategy was taken over by Jack Nelson in April 2022 from the now-closed St. Andrews Partners arm of Stewart Investors. Nelson brings 11 years of investment experience and has built a commendable track record on Stewart Investors Global Emerging Markets Sustainability, which he led between May 2017 and April 2023. He is backed by a strong supporting cast, including the highly experienced David Gait, who is the strategy’s comanager and heads the team of 13. Nelson has fully transitioned this strategy to his Stewart Investors Global Emerging Markets Leaders Sustainability strategy over the past year. The teamwide investment approach focuses on company’s quality and sustainability, and we think it is differentiated and has a proven efficacy in investing in emerging markets with great risk control. As such, we upgrade the strategy’s Process rating to High from Above Average, resulting in an upgrade of its Morningstar Medalist Ratings to Silver from Bronze for the clean B GBP share classes and the III USD Acc share class.
Claire Liang
FTGF Royce US Small Cap Opportunity X – Neutral from Negative
The managers of Royce Small-Cap Opportunity are consuming more of this volatile brew themselves but are still convincing investors they should have a taste. The vehicles' Morningstar Medalist Ratings range from Neutral to Negative, depending on domicile and fees, with its clean X share class upgraded to Neutral. The managers who took over this strategy after its prior team left for a competitor in April 2021 have increased their personal investments in it. Recent disclosures show that, as of February 2023, at least two current team members, James Stoeffel and James Harvey, now have more than $1 million invested in the strategy, while their two colleagues have increased their stakes. That lends credence to Royce Investment Partners' contention that the personnel it pressed into service when their predecessors abdicated are not mere interim caretakers. It's also encouraging that the people now in charge of this mercurial approach are comfortable enough with it to subject their own capital to the same ups and downs their investors experience. The show of conviction and alignment helps lift this strategy's People Pillar rating to Average from Below Average, resulting an upgrade to the Morningstar Medalist Rating of Neutral from Negative.
Dan Culloton
iShares MSCI Japan ETF USD Dist – Bronze from Neutral
While the iShares MSCI Japan ETF still charges an excessive fee, its fee advantage over actively managed peers still provides a reliable tailwind over longer periods. This coupled with our positive view of the funds’ strategy means that we still think this fund will outperform its peers on a risk-adjusted basis over a full market cycle. For this reason, this fund has been upgraded to a Morningstar Medalist Rating of Bronze from Neutral.
Kenneth Lamont
Robeco Euro Credit Bonds C € - Gold from Silver
Robeco Euro Credit Bonds benefits from seasoned management and the support of an expanding group of corporate bond experts, resulting in an upgrade of its People rating from Above Average to High. Meanwhile this strategy continues to gain from a flexible process that draws on the firm's robust fundamental research and risk-management capabilities. As a result, the strategy’s Morningstar Rating on its cheaper share classes, including the clean C Euro share class, rise from Silver to Gold while more expensive share classes are rated Bronze and Neutral. Lead manager Victor Verberk has been at the helm since he joined Robeco in January 2008. Since then, he has risen through the ranks to become the firm’s CIO of fixed income and sustainability in 2020. In February 2023, Verberk relinquished his team management responsibilities to veteran credit analyst Taeke Wiersma in order to focus on investment-related responsibilities. Comanagers Jan Willem de Moor and Peter Kwaak, who each boast more than two decades of credit experience, have supported Verberk here throughout that time. As Verberk’s workload has increased, he has increasingly delegated the day-to-day portfolio management to his comanagers while focusing primarily on top-down positioning. That said, we remain confident in the duo’s ability to add value through bottom-up company analysis, especially given the ample credit research resources backing them: Robeco’s 23 credit analysts boast an average of 18 years’ industry experience, and the majority have been with the group for a decade or more. The strategy’s solid record since inception is a testament to the team’s deft execution of a well-founded process, which hinges on a combination of top-down credit beta management and bottom-up security selection.
Elbie Louw
Robeco Global Credits CH EUR – Silver from Bronze
Robeco Global Credits benefits from seasoned management, the support of an expanding group of corporate bond experts, and a flexible process that draws on the firm's robust fundamental research and risk-management capabilities. The fund’s cheapest share class earns a Morningstar Medalist Rating of Gold, while more-expensive share classes are rated Silver, Neutral, and Negative. Victor Verberk has been at the helm since the strategy’s inception in June 2014. He joined Robeco in January 2008 and rose through the ranks to become the firm’s CIO of fixed income and sustainability in 2020. In February 2023, Verberk stepped back from his administrative duties in order to focus more fully on investment management—a positive development for this strategy—relinquishing management of the 35 -member global credit team to long-time credit analyst Taeke Wiersma. The strategy also benefits from the long-time involvement of veteran comanager Reinout Schapers, who boasts roughly two decades of credit experience and also leads the firm’s emerging-markets credit strategy. The fund’s outstanding record since inception is a testament to the team’s solid execution of a nimble and thoughtful process, which hinges on a combination of top-down credit beta management and bottom-up security selection. Quarterly credit outlook reviews help the team define its overall appetite for credit market exposure and determine any regional tilts or investment themes it deems interesting, while individual company idea generation stems from in-depth credit analysis carried out by 23 experienced credit analysts.
Elbie Louw
Schroder Asian Asset Income C Acc USD – Bronze from Neutral
Schroder Asian Income SGD C Dis – Bronze from Neutral
This strategy is a solid income-focused Asia multi-asset offering. Lead manager Keiko Kondo has 30 years of investment experience but has a relatively short tenure as final decision-maker here since 2021. She makes asset-allocation decisions and relies on the underlying sleeve managers for stock and credit selection. The investment processes are structured and repeatable, and we have increased our conviction in the team’s execution of the asset-allocation process following an equity-sleeve refinement since 2020, where a core subsleeve was introduced alongside the pre-existing income subsleeve to enhance flexibility in navigating different market environments. With an upgrade of the Process rating to Above Average from Average, the Morningstar Medalist Ratings of the cheaper C share classes are upgraded to Bronze from Neutral for both the Hong Kong-domiciled Schroder Asian Asset Income and the Singapore-domiciled Schroder Asian Income; other share classes are maintained at Neutral.
Sam Hui
Xtrackers MSCI EM Swap ETF – Bronze from Neutral
Xtrackers MSCI EM Swap ETF offers global emerging-markets equity exposure. This fund was downgraded last from Bronze to Neutral in 2022 due to an erroneous fee data error. At this review, we are upgrading it back to Bronze. The fund tracks the performance of the MSCI Emerging Markets Index, an index made up of 24 countries. The strategy has a long-standing China bias that has been increasing since 2017 when MSCI implemented a phased inclusion of China A-shares into its global and emerging-markets indexes but has since dropped to around 30% after a large correction in 2021 where it stood closer to 40%. Other major allocations include Taiwan, India, and South Korea, effectively concentrating half of the portfolio exposure into four countries and leaving active peers good scope with which to add value. The fund carries an ongoing charge of 0.49%. While this fund is cheap relative to its active peers in the category, there are cheaper passives available. In terms of performance, this fund's Morningstar Risk-Adjusted returns ranked in the second quartile over three-, five- and 10-years relative to its category peers. All told, this fund has been re-assigned a Morningstar Medalist Rating of Bronze.
Monika Calay
Downgrades
Capital Group Global Allocation Fund (LUX) Z – Silver from Gold
Capital Group Global Allocation impresses with its seasoned manager team, proven bottom-up-oriented multimanager approach, and a parent company that serves its investors exceptionally well. The fund remains one of our highest convictions within the USD moderate allocation Morningstar category. Although we retain the People Pillar rating at High and the Process Pillar rating at Above Average, rating changes among rivals mean that the fund’s Morningstar Medalist Rating gets a downgrade to Silver from Gold for its Z share class. Other share classes are rated Gold to Neutral.
Thomas DeFauw
Colchester Global Bond USD Unhedged I Acc – Bronze from Silver
Colchester Global Bond remains a sound choice for global sovereign bond exposure and we have reiterated the People and Process Pillar ratings at Above Average. Colchester boasts a robust process and a well-credential and collegial team, although investors should be aware that this strategy is solely focused on sovereign bonds. Nonetheless, changes in the competitive landscape within the Global Bond Morningstar Category have resulted in the downgrade of Morningstar Medalist Rating to Bronze from Silver for its clean USD Unhedged I Acc share class, other share classes are rated Silver to Neutral depending on fees.
Justin Walsh
iShares MSCI Emerging Markets SRI ETF – Neutral from Bronze
iShares MSCI Emerging Markets SRI offers a screened portfolio of emerging-markets stocks from the wider MSCI Emerging Markets universe. The strategy is designed to exclude laggards on several environmental, social, and governance metrics such as carbon emissions and controversial weapons while using a best-in-class ESG selection approach. In emerging markets, stricter ESG screens often exclude a vast majority of the universe, leading to significant concentration risk at the stock and country level. For example, the fund’s index holds around 180 components compared with 1,400 for its non-ESG screened parent universe and is significantly underweight China relative to the category average. To ensure diversification at the stock level, the underlying index applies a maximum 5% cap to individual stock weightings. Overall, investors looking to make a socially conscious allocation to emerging-markets equities may find that this strategy fits the bill. Its low price should support performance over the long term. However, this fund is significantly less diversified compared to plain vanilla trackers. For this reason, we have downgraded this fund's Morningstar Medalist Rating to Neutral at this review.
Monica Calay
iShares USD High Yield Corporate Bond ETF – Neutral from Bronze
Passive funds are useful instruments for investors to quickly lock in positions in the high-yield bond market. However, this remains an asset class where experienced active managers can add value over a standard index-tracking strategy. The fee advantage of relative to active peers, which in the European fund market is quite sizeable, is the key positive factor in their favour. However, the shortcomings of a passive approach to this market warrant capping this fund´s Morningstar Medalist Rating to Neutral, a downgrade from Bronze at the previous review.
Jose Garcia Zarate
UBS(Lux) FS MSCI EM SRI USD – Neutral from Bronze
UBS MSCI Emerging Markets offers a screened portfolio of emerging-markets stocks from the wider MSCI Emerging Markets universe. The strategy is designed to exclude laggards on several environmental, social, and governance metrics such as carbon emissions and controversial weapons while using a best-in-class ESG selection approach. In emerging markets, stricter ESG methodologies often exclude a vast majority of the universe (180 vs. 1,400 in the parent index), often leading to significant concentration risk at the stock and country level. To ensure diversification at the stock level, the underlying index applies a maximum 5% cap to individual stock weightings. Based on our improved ratings methodology, the strategy has been assigned a Morningstar Medalist Rating of Neutral, reflecting the fund's Below Average Process Pillar.
Monika Calay
Xtrackers MSCI Emerging Markets ESG ETF – Neutral from Bronze
The Xtrackers MSCI Emerging Markets ESG ETF offers a screened portfolio of emerging-markets stocks based on the wider MSCI Emerging Markets universe. The strategy is designed to exclude laggards on several environmental, social, and governance metrics such as carbon emissions and controversial weapons. While stocks with good ESG credentials are the focus of the portfolio, the corollary is heavy country and stock concentration risk and an arguably less diversified portfolio versus vanilla passive emerging-markets funds. Given this fund has been assigned a Below Average Process Pillar, its rating has been downgraded to Neutral.
Monika Calay
Re-Rated from Under Review
Artemis Global Select I Acc – Neutral from Under Review
Following our formal review of the Artemis Global Select fund, the Process and People pillars were downgraded to Average and Below Average. The announced retirement of long-time manager Simon Edelsten is a significant loss and Artemis have brought in Alex Stanic from JPM to become the Head of Global Equities. Stanic boasts an impressive 28 years’ experience, and the team will grow to five following the hiring of two new PMs to work under Stanic, this is a collection of individuals that have never worked together before creating uncertainty around process implementation. Also, whilst there are similarities in the theme-focused process Stanic ran at JPM, the Artemis strategy keeps a much more core portfolio as a result of its value bucket and overlap between the two is small. Whilst there is the potential here to build a compelling offering, at present there are many uncertainties which require time to evaluate. The overall Morningstar Medalist Rating is downgraded from Silver to Neutral as a result of these Pillar downgrade including its clean I Acc share class. The fund was previously placed Under Review.
Michael Born
Kempen (Lux) Global Small-Cap BN – Neutral from Under Review
With the departure of Maarten Vankan, Chris Kaashoek, and Luuk Jagtenberg, the strategy loses an experienced trio of portfolio managers. Experienced lead manager Jan Willem Berghuis will remain at the helm. He spent his entire career at the firm, starting as an equity analyst in 1999 before moving to a portfolio management role at Dutch small-cap fund Kempen Orange in 2008. Here, he worked alongside the highly regarded small-cap investor Joop Witteveen, and this experience laid the foundation for this strategy. He keeps the support of Drew Milgate, who joined the team in January 2023 after finalizing a graduate program at the firm. Kempen is looking to backfill all positions and disclosed the first replacement shortly after it announced the departures. However, it will take time for Berghuis to mold a cohesive team as he did before. It remains to be seen if the new joiners will be of the same caliber as the ones who left and how relevant their background is for managing this global portfolio. The departure of three experienced portfolio managers is a significant loss for this strategy. While its lead manager and the robust and well-structured fundamental bottom-up approach will remain in place, the departures meaningfully affect our conviction in the strategy. After placing them Under Review, we have reinstated the Morningstar Medalist Ratings at Neutral across all share classes including the clean BN share class, while these were Silver and Bronze, depending on fees, before going Under Review.
Ronald van Genderen, CFA
Kempe Orange Fund – Bronze from Under Review
Comanager Michiel van Dijk leaves the firm as of 1 May 2023 alongside three members of the global small-cap team. He was instrumental to this strategy given his long tenure and strong expertise on the Dutch small-cap market. He was also responsible for covering around a third of all portfolio holdings, which will be distributed among the three remaining team members until a replacement is hired. The remaining team still consists of a cohesive group of capable investors. Erwin Dut and Sander van Oort both joined the team in 2018, and while they are less experienced as portfolio managers than Van Dijk, they have extensive backgrounds as equity analysts covering mostly Dutch equities, primarily within Kempen. Meanwhile, Ingmar Schaeffer is an experienced European mid- and small-cap investor who joined in February 2019. The strong approach of this strategy will remain untouched after the departure of Van Dijk, but his departure leads to slight caution on the process’ execution, which had been first-class. Van Dijk was the longest-tenured manager on this strategy, the most ingrained into the approach, and the only team member directly mentored by Joop Witteveen, the founder of the approach. The departure of this strategy’s longest-tenured manager and caution about the effectiveness of implementation of the strategy’s long-standing and proven fundamental bottom-up approach lead to a downgrade of the Morningstar Medalist Rating to Bronze; the fund had been rated Gold before it was placed Under Review.
Ronald van Genderen, CFA
PIMCO GIS Glb Hi Yld Bd Instl USD Acc – Bronze from Under Review
Pimco GIS Global High Yield Bond has been rerated after being placed under review as it is undergoing significant personnel changes: lead manager Andrew Jessop is retiring at the end of June 2023, after 30 years in industry. Jessop, who has run this strategy since 2010, will be replaced by David Forgash. Forgash joined Pimco in 2018 to launch a European high yield fund, but soon after moved to the leveraged loans team in 2020 when portfolio manager Beth MacLean retired. He has remained a named portfolio manager on Pimco GIS Global High Yield since 2019, but was not the main decision-maker here. While Pimco’s resources are vast, Jessop’s pending departure and transfer of lead manager responsibilities is the latest among a series of personnel changes at the firm; another US High yield portfolio manager, Amit Agrawal, left earlier in 2023 and the European credit analyst team has been unstable as well. This has led us to downgrade the People Pillar rating to Average. We nevertheless retain conviction in the quality of the investment process, which Jessop instilled as a discipled and conservative approach to high yield bond investing, and that will be continued by Forgash and co-manager Sonali Pier, which earns this fund a Bronze rating for the cheapest Institutional share classes while other share classes hold neutral and negative ratings.
Jena Marie Doubell
