Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: Fund rating updates for JP Morgan, Polar Capital, Fidelity and Legg Mason

Morningstar Analysts 9 January, 2017 | 2:51PM

New Ratings

JP Morgan Emerging Europe Equity – Bronze

Lena Tsymbaluk

We are initiating coverage for the Lux-domiciled JPM Emerging Europe Equity fund with a Morningstar Analyst Rating™ of Bronze. This is in line with the existing rating for the strategy’s UK-domiciled vehicle JPM Emerging Europe Equity, which has a longer track record. The manager, Oleg Biryulyov, has spent 20 years covering emerging European stocks and has been successfully managing the UK-domiciled fund with the same approach since 2002. The portfolio is built from the bottom up using both quantitative and qualitative criteria and typically consists of 45-65 holdings. We have a high opinion of the manager’s experience in the region and his disciplined and proven approach, which has led towards strong long-term results.

TCW Funds MetWest Total Return Bond – Gold

Mara Dobresu

The fund benefits from an experienced team of managers and analysts, led by Tad Rivelle, Steve Kane, Laird Landmann, and Bryan Whalen. This recently-launched European-domiciled fund mirrors the strategy that has been successfully executed on the US-domiciled Metropolitan West Total Return, also rated Gold, since 1997. In addition to its experienced team and effective investment process, the fund’s fees are below the industry average, which also adds to its appeal.


Fidelity European High Yield – Neutral

Niels Faassen

Despite the team’s continuity under Andrei Gorodilov's lead and Ian Spreadbury’s continued involvement, we have concerns about their ability to add value within the fund's broad universe. The opportunity set consists of bonds issued by European companies, irrespective of their currency of issuance. This results in a broader universe compared with most of its peers, especially in Eastern Europe and Russia. We also consider the turnover at Fidelity’s team of credit analysts to be on the high side relative to peers and the analyst team has a shorter collective tenure than competitors. Finally, with more than €4 billion in assets under management, the strategy is one of the biggest in the European high yield space; we think the group could do better at passing on economies of scale and that the above-median fees are disappointing.

Legg Mason IF Royce US Smaller Companies – Neutral

Lena Tsymbaluk

We believe there have been issues with the implementation of the process here, namely poor sell discipline, questionable assessment of quality and weak portfolio construction. Although we appreciate the firm’s heritage of investing in US small-cap equities and the support that manager Lauren Romeo gets from Royce’s seasoned management team, we believe she hasn’t yet proved that she can execute the strategy successfully over a long period. Therefore, we believe a Morningstar Analyst Rating of Neutral is a better reflection of our conviction.

Polar Capital Japan – Neutral

Lena Tsymbaluk

Since the summer of 2016, James Salter has been sole portfolio manager on the fund; Gerard Cawley, his former co-manager, has been focusing exclusively on the Polar Capital Japan Alpha strategy. While we still have conviction in Salter, the different team set up and dynamics lead to some uncertainty.

Although we acknowledge that the fund has been negatively affected by the bullish stance taken since the beginning of Abenomics, the process provides the flexibility to be more reactive to market conditions or build a more balanced portfolio and we believe this pragmatism should have led to better participation irrespective of market conditions or style headwinds. Finally, we think the presence of a performance fee on top of an already expensive ongoing charge further detract from its appeal.

Ratings Reassigned from Under Review

Old Mutual UK Equity Income – Neutral

Peter Brunt

Old Mutual Global Investors appointed Ed Meier the lead manager of Old Mutual UK Equity Income on December 14 2016, following the departure of former manager Stephen Message. Meier has worked with OMGI CIO Richard Buxton and Errol Francis for several years, but has no experience running an equity income mandate. He will manage the fund along the same lines as Buxton on the UK Alpha strategy, with a greater focus on generating a high and growing dividend. Given the change in process, the inexperience of the new manager, and the highly competitive nature of the UK equity income Morningstar Category, we have decided to assign the fund a Morningstar Analyst Rating of Neutral.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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