Upgrades
BSF Global Long/Short Equity - Silver from Bronze
Francesco Paganelli
We have upgraded our Morningstar Analyst Rating for BSF Global Long/Short Equity to Silver from Bronze. The strategy’s veteran team, superior resources, and forward-thinking approach continue to help the fund stay ahead of peers. Our conviction in this experienced and well-resourced team has increased, earning the fund an upgrade to a Morningstar Analyst Rating of Silver.
Downgrades
Alken Small Cap Europe - Bronze from Silver
Mathieu Caquineau
We have reduced Alken Small Cap Europe’s Morningstar Analyst Rating to Bronze from Silver to reflect our lower level of conviction. One of the three co-managers, Raif Abillama, was asked to step down in May 2019 and returned to an analyst role with the team. He was promoted in 2017. While decision-making had remained a joint effort with the fund’s longtime managers, Nicolas Walewski and Marc Festa, Abillama was primarily in charge of generating investment ideas with the help of the research team. This has not worked as well as expected. Beyond our concerns related to idea-generation in the small-cap space, we note that Walewski and Festa’s workload has increased with the strategy now fully back in their hands and no immediate plan to replace Abillama. The fund’s high fees remain a major drawback. The strategy still has merits, however. The fund managers and the team around them are experienced and they have used this high-conviction approach to good effects over the long term.
H20 Allegro - Neutral from Bronze
Mara Dobrescu
H2O Allegro is run by an experienced team adept at making top-down calls on government bonds and currencies. But this team’s decision to invest a sleeve of Allegro’s portfolio in illiquid, high-risk corporate bonds, all linked to German entrepreneur Lars Windhorst, raises concerns about the robustness of the security-selection process applied here. This adds to our pre-existing concerns on the effectiveness of this fund’s risk controls, resulting in downgrading the Morningstar Analyst Rating to Neutral from Bronze. Morningstar previously reported that the fund had cut its bond exposure following the exit of the firm's chief executive.
Invesco Japan (UK) - Neutral from Bronze
Ronald Van Genderen
We have downgraded the Morningstar Analyst Rating for Invesco Japan (UK) to Neutral from Bronze. We still value the experience of the two managers. Lead manager Paul Chesson has managed this fund since 2000, has covered Japanese equities since the start of his career in 1990, and benefits from the input of comanager Tony Roberts, who has worked closely with him on this strategy since joining the group in 2000. However, we think the team is understaffed relative to its workload, and we consider other teams that we cover in the Japan equity space to be better resourced. The two managers aim to identify out-of-favour companies trading at a significant discount to their intrinsic value. They make extensive use of external research to form their own views. They pay no heed to the Topix benchmark when constructing the portfolio, so it can often look markedly different from both the benchmark and peers. As a result, together with the focus on valuation, returns can be at odds with the market and peers over the short term. This is also reflected in its volatility. The more recent performance has been uneven and has dented the long-term track record.
Jupiter Absolute Return - Neutral from Bronze
Fatima Khizou
Jupiter Absolute Return has been managed by James Clunie since September 2013 using a straightforward investment approach that puts high emphasis on quantitative screens but less on the fundamental analysis. This approach has resulted in a portfolio that has exhibited long-lasting biases and a mixed track record. We acknowledge Clunie’s experience, but, relative to competitors, the resources dedicated to implement this strategy are light and a lot rests on his shoulders. These elements have lowered our conviction in this strategy, and we have therefore downgraded its Morningstar Analyst Rating to Neutral from Bronze.
Jupiter Ecology - Neutral from Bronze
Ronald Van Genderen
We have downgraded the Morningstar Analyst Rating for Jupiter Ecology to Neutral from Bronze. We think this strategy has lost its appeal as the experienced environmental lead manager Charlie Thomas has accumulated responsibilities in recent years. He has managed this strategy since September 2003. He was given additional responsibilities in 2016 after the introduction of two new strategies, which brings the total to five strategies under his helm. This raises concerns around his workload especially because he lost direct support from portfolio manager Abbie Llewellyn-Waters and sustainability investment analyst Mark Evans. Previously, they were directly involved with this strategy, but in April 2018 they began running Jupiter’s new Global Sustainable Equities strategy. In our opinion, this is a substantial decrease in available resources, as Thomas is now supported by only one analyst; it also adds to our concern regarding Thomas’ workload and dents our conviction in the execution of the process. His approach is still based on identifying stocks through a bottom-up framework, combined with a thematic overlay that aims to identify companies that have the potential to generate sustainable profits and benefit from long-term environmental drivers.
Majedie UK Equity - Neutral from Bronze
Peter Brunt
Changes to the team managing this strategy have raised concerns over the approach to blending underlying managers and the level of diligence in manager selection. When combined with changes in personnel and structure to the broader supporting team, and a limited level of disclosure, our conviction has decreased. The Morningstar Analyst Rating is therefore lowered to Neutral from Bronze.
PIMCO GIS Emerging Local Bond - Neutral from Bronze
Jeroen Siecker
We have downgraded the Morningstar Analyst Rating for PIMCO GIS Emerging Local Bond to Neutral from Bronze. Persistent team turnover is reason for caution. On 3 May 2019, the firm announced that the fund’s longtime lead manager Mike Gomez was going on sabbatical from July through December 2019. The team lost another of its veterans when Balcells departed the firm on June 13. Balcells had been with the team since 2012. Pramol Dhawan and Francesc Balcells took the reins, and Ismael Orenstein, an analyst on the team since 2012, was added as a comanager.
Witan Investment Trust (WTAN) - Bronze from Silver
David Holder
Witan Investment Trust remains a solid choice for investors seeking core global equity exposure. The overall investment resource remains very solid, but as our qualitative coverage of peers has evolved, we believe that the investment process no longer stands out on a relative basis, meaning the Morningstar Analyst Rating has moved to Bronze from Silver.
