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Morningstar Manager Check-up

Morningstar head of fund research Jonathan Miller talks senior editor Holly Black through this week's funds, including Brunner, M&G and Artemis

Holly Black 14 August, 2019 | 2:23PM

 

 

Holly Black: Welcome to the Morningstar Manager Check-up. I'm Holly Black. With me is John Miller. He's Head of Fund Research at Morningstar.

Hello.

Jonathan Miller: Hi, Holly.

Black: So, no upgrades or downgrades this week, but you're going to tell us about a few funds that are rated that you've been looking at.

Miller: That's right. These are all positively rated, the ones we're going to discuss. And I think we'll start with an investment trust, which is called Brunner (BUT). It's got a Bronze rating. So, we think there's some positive aspects there. The underlying group running it is Allianz Global Investors and it's Lucy Macdonald, who's the named fund manager. So, she's been running the Trust for about 15 years or so, long experience in global equities, she's actually CIO of the business and she taps into a big research analyst bank globally in terms of sectors and themes. And this Trust has generally got a bit of a growth leaning, so it likes structural stories that are doing well, but willing to pay the right price for it, so not going too far in terms of valuation. So, for example, some top holdings will be – examples – got Microsoft, Visa, but also Shell. So, shell is part of the income side, I'd say, where the Trust has grown its dividend for 47 years in a row. The yield is around 2.3% at the moment.

So, there's growth and a bit of income in there. And maybe finally to add is something we've seen in global trusts, about the last seven or eight years is a leaning away from the UK and going more global where the opportunity set is bigger and also the income side can be earned in effect outside the UK as well, so sort of about 70% in global, 30% in the UK

Black: So, something I find a bit confusing is the Trust has grown its dividend for 47 years, which is obviously pretty incredible. But it only yields around 2%. Do you expect it to be higher? How does that work?

Miller: I think when people look at the UK market today, given how badly it's performed relative to a lot of the global peers, the headline yield on the UK stock market is over 4%. But I think you've just got – here you've got a mix of growth and income. And what you've got in the Investment Trust is the ability to use reserves as a way of helping to pay out income in case your underlying investments don't necessarily hit that target or the level you're looking for. So, in this case, for them to be able to grow their dividend they still have about 18 months' worth of reserves at the current rates to be able to sustain that growth. But yes, 2.3% for some people might be wanting more, but there is a positive tailwind there.

Black: So, you say the UK markets are out of favour. They can't be that bad because we've got a UK smaller companies fund to talk about.

Miller: Yeah. And if the UK is out of favour, you got small-caps which are even at higher risk end, but for us looking at building blocks and ideas, we look across all sorts of sectors and asset classes and UK smaller companies is an area that does offer growth over long term. Artemis UK Smaller Companies we rate Silver. Mark Niznik has been manager there for about a decade or so. Artemis hired him from Standard Life Investments where he had a track record as well. And he's looking for stocks that are paying the right price again for the valuation that you have. So you saw a lot of small cap managers riding the Fever-Tree wave. So Fever-Tree, I'm sure you know about it, for our viewers, it's a tonic that is used in gin and had a meteoric rise in share price over the years.

And it was paying at a high valuation, and managers were willing to pay for that. Mark Niznik isn't so much in that camp. So it's slightly differentiated from other smaller companies funds in terms of the profile of stocks it looks for, but you still get that growth, maybe not as extreme growth in terms of what your manager's willing to pay for in terms of valuation. So something a bit different and you know, performance has continued on a decent vein. So we're happy with that – the Silver rating.

Black: And what's the last fund we're talking about?

Miller: The final one is moving on to fixed income. So M&G Global High Yield. So high yield is towards the riskier end of the bond market. And there we've got Stefan Isaacs, who's been manager for about eight, nine years. And James Tomlins is Co-Manager for about four or five years. As a pair they mix things up a bit with Stefan Isaac's a bit more in the top down sector positioning and James Tomlins' a bit more involved in the bottom up. They can also call on a big team of analysts at M&G who do all the credit analysis. So deep bench of people that can get on with the bottom up work and also the trust become – the funds become more global in nature.

So given we're in the UK, don't want to get too complicated, but the currency is hedged back into Sterling when they're buying bonds from – in another currency. And there they've been looking at US dollar denominated bonds going a bit more global. And then hedging the currency back which you have to do as a UK investor for being part of the investment association sectors and not getting too much currency risk. So high yield is at the higher risk end there are risk of defaults. There has been a couple along the journey in this fund. It's been a bit more volatile than peers. But overall, the rewards been pretty decent and that brings our Bronze rating together for that one.

Black: Well, thanks so much for your time.

Miller: Pleasure.

Black: And thanks for joining us.

 

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
Artemis UK Smaller Companies I Acc1,709.58 GBP-0.43
Brunner Ord827.00 GBX0.36
M&G Global High Yield Bond GBP I Acc1,454.67 GBP0.10

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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