Morningstar Fund Ratings: The Monthly Update

Daniel Haydon

BNY Mellon Multi-Asset Growth Instl W Acc—Silver
BNY Mellon Multi-Asset Income Instl W Acc—Bronze

BNY Mellon Multi-Asset Growth and BNY Mellon Multi-Asset Income both earn Above Average People and Process ratings based on a capable lead manager, wider supporting resources, and a disciplined investment process underpinned by BNY Mellon-owned Newton's time-tested thematic approach. BNY Mellon Multi-Asset Growth is an equity-driven multi-asset offering typically 80%-90% invested in equities. BNY Mellon Multi-Asset Income aims to provide consistent and growing income from equities, bonds, and listed alternatives, with the latter asset class playing an important role over the strategy's life. Paul Flood is lead manager of both funds. He is an experienced investor who joined Newton in 2004 and took over leadership of its mixed assets team in 2022. With his experience in multi-asset, equity income, and alternatives, we consider Flood suitably skilled to manage these mandates. In making asset-allocation and security-selection decisions, Flood draws on the wider, nine-member mixed assets team including experienced alternate portfolio managers Bhavin Shah (BNY Mellon Multi-Asset Growth and BNY Mellon Multi-Asset Income) and Simon Nichols (BNY Mellon Multi-Asset Growth). The managers are well-integrated into the broader Newton approach. They draw on the house investment themes and take ideas from a well-resourced team of global industry analysts – a valuable resource, as security selection is a key element for both funds.

Tom Mills

BlueBay Global Investment Grade Corporate Bond C USD—Bronze

BlueBay Global Investment Grade Corporate Bond Fund boasts continuity in both its investment approach and the experienced portfolio management team. We initiate coverage of the strategy with People Pillar rating at Above Average and Process Pillar rating at High. The Morningstar Medalist Ratings range from Gold to Neutral, depending on share class-level fees. Andrzej Skiba, head of US fixed income, is lead portfolio manager here since its inception in October 2012. Marc Stacey and Tom Moulds became comanagers in December 2017. The comanagers' complementary skillsets are a key positive, with Skiba focusing on the US, Stacey specializing in EU financials and CoCos, and Moulds focusing on European corporates. The collective skill sets of the portfolio managers combined with the experience and active involvement of the analyst teams across research, idea generation, and specific trade recommendations drive our positive view here. The well-defined, consistent, flexible and team-driven investment process has led to solid returns since inception and strong and consistent outperformance over peers and the category index in a range of different market regimes over the years. Bottom-up security-selection is the main driver of returns, while top-down drivers (term structure and credit beta) are typically secondary. The tactical use of single-name shorts via credit default swaps, typically around 10% of the fund, adds to the flexibility compared with peers but can also be a source of volatility.

Evangelia Gkeka

JPMorgan US Hedged Equity C Acc USD—Bronze

Hamilton Reiner runs the show here. The lead manager and architect of the strategy joined J.P. Morgan in 2009 and has more than three decades of equity and options trading experience. He is supported by comanager Raffaele Zingone and a broad team of J.P. Morgan equity analysts who implement the low tracking-error equity portfolio the options are built around. The strategy cushions downside loss by forgoing some upside returns. Every three months, it layers S&P 500 options on top of an equity portfolio that closely hugs the index. To offer downside protection, the managers buy put options with strike prices 5% below the S&P 500's market value. They pay for part of that purchase with proceeds from selling put options 20% out of the money. This structure should protect the fund from losses between 5% and 20% during the options' three-month period. If the index falls less than 5%, the fund should closely track the S&P 500. If the index falls more than 20%, the fund will begin participating in losses once again, maintaining a roughly 15-percentage-point advantage over the S&P 500. After a soft close in early 2021, the fund reopened in February 2023. The strong increase in average daily volume on S&P 500 options has been a positive sign for underlying liquidity and alleviated capacity concerns. JPMorgan Hedged Equity continues to deliver on its promise of a low-volatility portfolio that can help investors stay the course during volatile markets. Consistent implementation by an experienced team and a reasonable fee add to its strengths.

Lan Anh Tran

abrdn Emerging Markets Income Equity I Acc—Neutral

abrdn Emerging Markets Income Equity benefits from a skilled manager and its well-established, quality-focused investment strategy. However, ongoing staff turnover within the broader team raises concerns. We initiate the strategy's People and Process Pillar ratings at Average and Above Average, respectively. This results in a Morningstar Medalist Rating of Neutral for all share classes, including the I Acc clean share class. Lead manager Matt Williams has overseen this strategy since June 2018, though his involvement began at the strategy's inception in December 2012. He brings notable experience in managing emerging markets and receives support from three experienced members: Gabriel Sacks, Yoojeong Oh, and Ben Shrewsbury. Together, they form the GEM Income Portfolio Construction Group or pod led by Williams, who holds final decision-making authority. The pod draws on a wider GEM team of around 50 members, which continues to see persistent turnover (with five to seven departures annually in recent years), indicating their broader struggle to retain the talent has reduced our confidence. The strategy follows the firm's proven, bottom-up, quality-focused approach, aiming for a total return with a yield at least 115% higher than the MSCI Emerging Markets Index. It balances high dividend-paying stocks with dividend-growth stocks, typically allocating 50% to each category. Williams, being risk-conscious, emphasizes business profitability, cash flow, quality, and life cycle. Overall, the approach is flexible and is not limited to a few high-yield stocks, broadens the opportunity set and enhances diversification.

Ramanand Kothari

Comgest Growth Emerging Markets Plus U GBP Acc—Neutral

Comgest Growth Emerging Markets Plus is a variant of the Comgest Growth Emerging Markets strategy that formally excludes oil and gas companies. Barring a few small positions, their portfolios are closely aligned. Comgest Growth Emerging Markets is a quality-growth investment strategy with a strong heritage. But the fund has faced major style headwinds with the continued dominance of value stocks since 2021 and also suffered from stock-picking mistakes particularly in China, inappropriate position sizing and a less strict adherence to growth and quality criteria in the security selection. As a result, the strategy's Process Pillar rating is rated Average. The firm's leadership has made several changes to the portfolio management team since 2021 in a bid to restore the fund's competitiveness. The fund is in the hands of Nicholas Morse and Van Zyl who were appointed in 2020 and 2024, respectively. While the research capabilities of the broader team appear sound, this portfolio management team is still unproven and needs stability. The strategy earns a People Pillar rating of Average. All share classes earn a Morningstar Medalist Rating of Neutral.

Mathieu Caquineau

Upgrades

DWS Invest ESG Dynamic Opportunities FC—Silver from Bronze

The flexible allocation approach, integrated risk management, and experienced team continue to back our positive view of DWS ESG Dynamic Opportunities. Although we retain the People and Process Pillar ratings at Above Average, rating changes among rivals mean that the fund's Morningstar Medalist Rating gets an upgrade to Silver from Bronze for its clean FC share class.

Thomas DeFauw

Robeco Smart Energy F USD Cap—Silver from Neutral

Robeco Smart Energy's current group of investors has impressed since replacing the previous team that left in 2021. Following the departure of Thiemo Lang and his two dedicated analysts in August 2021, Robeco quickly recruited replacements, with Roman Boner the first to be hired as the new lead manager of this strategy. Shortly after Boner's arrival, Robeco hired a new well-experienced team to support him on this strategy, while increasing the number of analysts on the bench from two to three. They can also draw on the broader thematic equity team, making the unit one of the best-resourced across the sector equity alternative energy Morningstar Category. This warrants moving the People Pillar rating from Average to Above Average. They have skillfully continued to execute on the existing successful approach, which has been left largely unchanged, and therefore, the Process Pillar rating is increased from Average to Above Average. The upgrade of the People and Process Pillar ratings drive an upgrade of the Morningstar Medalist Rating for the clean F share classes from Neutral to Silver.

Ronald Van Genderen

PIMCO GIS Asia Strategic Interest Bond USD Acc—Bronze from Neutral

The strategy boasts one of the most seasoned and stable investment teams in the Asian debt space, led by Stephen Chang, who has nearly three decades of investment experience. Chang is joined by an experienced comanager duo—Abhijeet Neogy, who works closely with Chang in the daily running of the strategy, and Mohit Mittal, who oversees the portfolio's risk guardrails. A well-resourced 10-member Asia credit research team, led by seasoned analyst Annisa Lee, forms the cornerstone of this group. This team boasts an average of 16 years of experience and is among the most stable in the region, seeing minimal turnover in personnel in recent years. This warrants an upgrade in the People Pillar rating to High, earning the strategy a Morningstar Medalist Rating of Silver for its Ins USD clean share class.

Arvind Subramanian

Downgrades

First Sentier Responsible Listed Infrastructure B GBP Acc—Neutral from Bronze

First Sentier Responsible Listed Infrastructure has not been able to deliver a distinctly superior proposition, and our conviction in the team skills have been damped. The strategy is yet to strike the balance between responsible investment merits and delivering on its investment outcomes. Lead manager Rebecca Sherlock is this strategy's architect and a longtime member and is supported by team head Peter Meany and co-portfolio manager Trent Koch. The team experience and cohesiveness have been outweighed by the struggles in stock selection over recent years, exacerbated by the challenges of a shifting interest-rate regime and gaps in assessing regulatory risks. This strategy follows a similar approach to the standard global listed Infrastructure fund. It utilizes the same relative value process with an additional sustainable leg. The strategy, however, continues to have a high overlap of between 50% and 70% with its traditional counterpart, a function of the constrained universe evolving through time. Additionally, benchmark weights are less relevant here, putting the emphasis squarely on stock selection and sector selection. Interest-rate risks are magnified, as seen by the detractors in performance over the past year to April 2024 in utilities, renewables, towers, and toll roads. The past five years to June 2024 have been challenging, with the longer-running vehicles underperforming the Morningstar category index and peer group average.

Shamir Popat

JPMorgan Euroland Dynamic C (perf) Acc EUR—Neutral from Bronze

JPM Euroland Dynamic's strengths lie in its stable and effective team that is well-supported by a far-reaching organization. However, the investment process does not stand out in our view. Team head Jon Ingram has steered this strategy since the fund's inception in 2011, providing continuity. Alex Whyte was named as an additional comanager in April 2019, whereas Blake Crawford joined the roster in late 2023 ahead of former comanager John Baker's retirement from the industry in 2024. Victoria Helvert and recent hire Thomas Harray round out the Dynamic team headed by Ingram, which is part of the wider international equity group at JPM Asset Management. Overall, the strategy is expected to deliver positive outcomes in stable market environments, where earnings and price momentum are driving returns, regardless of the trend direction. On the other hand, like many quant approaches, inflection points and rapidly changing market conditions may prove challenging to navigate.

Francesco Paganelli, CFA

Rerated from Under Review

Fidelity Flexible Bond Y-Dis-GBP—Neutral from Under Review
Fidelity Strategic Bond W Acc—Neutral from Under Review

Fidelity's Strategic Bond and Flexible Bond funds have been rocked by significant changes at the helm. The firm announced that Mike Riddell joined the company in August from Allianz Global Investors and is set to assume responsibility as the lead portfolio manager for Fidelity's strategic and total return bond funds, including Fidelity Strategic Bond and Fidelity Flexible Bond, with an effective date of Jan. 2, 2025, at the latest. As part of the team changes announced, the firm informed clients that comanager Ferrarese stepped down with immediate effect. Foster will maintain comanager responsibilities for the strategic and total return bond funds, along with their associated mandates, and will lead as the sole named manager in the interim. The change in leadership brings uncertainty on whether the fund is set to deviate stylistically from its current approach. This is evidenced by the notable differences in process and positioning between this strategy and Allianz Strategic Bond. While we are yet to assess the changes the new lead manager may implement to the strategy, some caution is warranted. This leads to a downgrade in the Process Pillar rating to Average from Above Average. The strategies were previously placed Under Review.

Giovanni Cafaro

Franklin Templeton Western Asset Global Bond Trust A SGD Acc—Neutral from Under Review

Despite the absence of former CIO Ken Leech from the roster, this strategy's management team and resources continue to stand out in its peer group. The strategy retains its People and Pillar ratings of Above Average and Average, respectively. In August 2024, Leech announced a leave of absence from Western Asset Management, stepping back from his portfolio management duties and his role as the firm's co-CIO amid a United States Securities and Exchange Commission investigation into his trading activities at certain bond strategies managed out of the US. The investigation is still ongoing. However, the day-to-day management of this strategy is handled by a London-based team, which uses a different trading process than the firm's US-based investment teams. That should insulate it to some degree from issues in other parts of the organization. The management team here includes London-based managers Richard Booth (who serves as lead manager), Gordon Brown, and Dean French, as well as Western Asset's CIO Mike Buchanan, who is based in the US. Buchanan took on the role of sole CIO in August 2024 upon Leech's leave of absence and has also replaced him as a comanager here. However, like Leech before him, Buchanan is not involved in overseeing the trading for this fund, which is handled by the London-based managers. Rather, Buchanan contributes top-down ideas and chairs the global investment strategy committee, where several of the firm's senior managers formulate their macro views. While Leech's absence is a loss to the broader team, this investment committee still boasts a strong cohort of global macro thinkers. The strategy was previously placed Under Review.

Elbie Louw

FTGF Western Asset Global Strategy F USD Acc—Neutral from Under Review

After it was placed Under Review in August due to the departure of Western Asset co-CIO Ken Leech, FTGF Western Asset Global Multi Strategy Fund Class saw its People rating reinstated at Above Average and Process rating reinstated at Average in September. Its F institutional clean share classes saw their overall Medalist Ratings restored to Neutral. In August 2024, Ken Leech stepped back from his portfolio management and CIO duties amid a United States Securities and Exchange Commission investigation into his trading activities at certain bond strategies. While the investigation is still ongoing, we do not believe it should have a direct impact on this fund, which is overseen by a London-based team operating under a different trading framework and process than the firm's US-based investment teams. The cohort of managers running this mandate—Ian Edmonds, Gordon Brown, Annabel Rudebeck and Mike Buchanan—has worked together for seven years, and most are multidecade Western veterans. They are also backed by Western's macro expertise as well as its ample research teams across global corporate credit, structured products, and emerging-markets debt. The strategy's wide-ranging investment style, including a penchant for emerging-markets and high-yield fare, has delivered solid long-term results but has, at times, delivered higher-than-expected volatility.

Shannon Kirwin

FTGF Western Asset US Core Plus Bond PR USD Acc—Neutral from Under Review

Former co-CIO Ken Leech took a leave of absence unexpectedly in August amid ongoing investigations by the US Securities and Exchange Commission and the Department of Justice concerning US Treasury derivative allocations across an undisclosed number of Western accounts, further complicating Western Asset Core Plus Bond's long-term succession plans and dropping its People rating to Average from Above Average. That came less than four months after Federal Reserve policy lead and head of US broad markets comanager John Bellows' abrupt exit in May. Overcoming both key-person losses would be a lot for any firm to handle. The four named managers who remain aren't lacking in experience. Mark Lindbloom, who regained lead broad markets portfolio management responsibilities when Bellows left, and comanager Fred Marki each have spent around four decades in the industry, and Michael Buchanan and Julien Scholnick have 34 and 25 years of experience, respectively. That still leaves us with succession concerns around the team's most seasoned leaders, even if they have no intention of retiring soon. Moreover, Leech's exit precludes him from remaining as an invaluable guide and resource for the next generation. The strategy was previously placed Under Review.

Max Curtin