Morningstar OBSR fund analysts have recently announced downgrades to five popular funds. Below is the team’s reasoning for the various downgrades:
Baring Europa & Baring European Growth Fund
We have downgraded the Baring Europa and Baring European Growth funds to a Morningstar OBSR Analyst Rating of Neutral. The funds previously held Bronze Ratings. We have diminishing conviction in these funds. Their performance profiles have been deteriorating for a protracted period of time during an admittedly difficult period for managers who rely primarily on fundamental stock analysis as their source of added value. We therefore believe the Morningstar Analyst Rating of Neutral is a more suitable reflection of these funds’ merits relative to their European equity peers.
Alliance Bernstein American Growth
We have downgraded the Luxembourg-domiciled Alliance Bernstein American Growth fund to a Morningstar OBSR Analyst Rating of Neutral. The fund was previously Under Review due to a change in manager. The new manager, Frank Caruso, is the fund’s fifth manager in ten years and there has also been a reduction in the analyst team supporting the manager. This mandate marks Mr Caruso’s first time running a fund specifically dedicated to US large-cap growth equity. The manager does, however, have experience running other styles of US equity and the reduced analyst support is sufficient, though the fund’s current characteristics are more in keeping with a Neutral Rating in our view.
Amundi US Relative Value
We have downgraded the Amundi US Relative Value fund to a Morningstar OBSR Analyst Rating of Neutral. The fund was previously rated Bronze and the Neutral rating is now in line with the Morningstar Analyst Rating on the strategy. Although the strategy has faced a style headwind which has affected performance in recent years, we still believe the team and process are sound. However, we have taken the decision to downgrade the rating based on the fund’s relatively high total expense ratio which, in our opinion, is a structural disadvantage in the fund’s ability to outperform its benchmark and peer group.
Lazard UK Equity
We have downgraded the Lazard UK Equity fund to a Morningstar OBSR Analyst Rating of Neutral. The fund was previously rated Bronze. The fund has struggled to gain traction in terms of asset growth and as a consequence has ended up with a higher total expense ratio than its onshore equivalent, the Lazard UK Alpha fund. We have therefore taken the decision to downgrade the rating as, in our opinion, the relatively high total expense ratio is a structural disadvantage in the fund’s ability to outperform its benchmark and peer group.
