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Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: Fund analyst updates on two newly rated ETFs from iShares and why Allianz Euro High Yield has been downgraded  

Morningstar Analysts 17 July, 2017 | 11:50AM

New Ratings

iShares € Corporate Bond 1-5 Year ETFBronze

Jose Garcia Zarate

This ETF has delivered returns above most peers – whether active or passive - in the Morningstar EUR Corporate Bond Short-Term Bond category over the past few years. Aside from the positive impact of its low ongoing charge of 0.20%, the fund’s higher-than-average duration, relative to a category where most funds follow a mandate in the 1-3y segment of the maturity spectrum has proved a nice tailwind, not least considering the exceptionally low interest rates in place.

However, this structural feature may play against it at times of rising interest rates. On balance, we see the ETF in good stead to deliver returns above the category average over the long-term, but one must take the magnitude of its recent past outperformance relative to peers with a healthy pinch of salt.

iShares € Corporate Bond ex-Financials ETFNeutral

Jose Garcia Zarate

The ETF provides exposure to the market of EUR-denominated corporate bonds issued by non-financial corporations. The ETF routinely delivers tracking difference below its low ongoing charge of 0.20%. From that standpoint, investors simply seeking this type of sector-discriminatory exposure will be well served by this fund.

As an investment proposition this ETF will always be a narrow sectorial mandate in a category where the vast majority of peers – whether active or passive – are not subject to such restrictions. The ETF could better peers in market conditions where credit risk trumps yield, but the opposite also holds true. This makes the ETF more adept for tactical investment purposes.

Downgrades

Allianz Euro High YieldNeutral

Niels Faassen

In June 2017, Allianz announced that lead manager Alexandre Caminade was no longer involved in managing Allianz Euro High Yield and will leave the firm by the end of August. We view Caminade’s departure as a considerable loss, given his long tenure and the fact that he was the one who built up the investment process in 2005.

He is succeeded by Vincent Marioni, whose prior track record at Natixis and Allianz is mixed. Additionally, the remaining portfolio management team hasn’t worked together for long in its current composition because of staff turnover in the team. These developments have lowered our conviction in the fund.

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.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Allianz Euro High Yield Bond R EUR104.00 EUR0.20-
iShares € Corp Bond 1-5yr ETF EUR Dist110.47 EUR0.05
iShares € Corp Bond ex-Fncl ETF EUR Dist GBP104.25 GBP-0.25
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Morningstar Analysts   -