Fund Rating Upgrades, Downgrades and Initiations

The Morningstar OBSR team have initiated coverage on a new Henderson fund, as well as upgraded the rating on two Standard Life funds

Alanna Petroff 2 November, 2012 | 8:00AM

Morningstar OBSR analysts have announced some fund upgrades and downgrades over the past few weeks, and also awarded a new rating to a Henderson European corporate bond fund. 

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Upgraded: Standard Life Higher Income
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Morningstar OBSR has upgraded the Standard Life Higher Income fund to a Bronze Rating. The fund had previously been placed under review following the announcement that David Ennett was to replace Arthur Milson as lead fund manager. After meetings with the new manager, the Morningstar OBSR team said, "We believe a Bronze Rating is a fair reflection of the team’s ability to deliver an attractive outcome over the longer term."

Upgraded: Standard Life Global Absolute Return Strategy
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The Standard Life Global Absolute Return Strategies (GARS) fund was also upgraded to a Bronze Rating. The fund’s rating had previously been under review due to some significant changes that had taken place in the multi-asset investment team, which manages the GARS fund. Morningstar OBSR said, "We are now reassured that the team, under the continued leadership of Euan Munro and Guy Stern, remain focused on the successful management of the fund ... They have taken positive steps to strengthen the team who manage the GARS fund."

Downgraded: BlackRock Global Funds Global Opportunities
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This fund was recently downgraded to a Neutral Rating. The fund was previously rated Bronze. "The fund’s performance has struggled in recent years as the portfolio has moved higher up the market-cap scale," said the Morningstar OBSR team. "As such we have less conviction in the team’s ability to add value over the long term."

Downgraded: F&C Indian Investment Company
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This fund was recently downgraded to a Neutral Rating after previously holding a Bronze Rating. "Although we still believe the manager and process are sound, we have taken the decision to downgrade the rating based on the fund’s relatively high total expense ratio," said the Morningstar OBSR team. "In our opinion, the high cost is proving to be a structural disadvantage and the fund has not been delivering outperformance that is commensurate with the expenses investors are charged."

Downgraded: Franklin US Government
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This fund was downgraded to a Bronze Rating from a previous Silver rating. The main reason for the downgrade was the fund's high Total Expense Ratio. However, the fund still offers European investors an attractive way to access US mortgage-backed securities, said Morningstar OBSR. "We believe a Bronze Rating is a more appropriate reflection of the level of our positive conviction in the strategy." 

Initiated: Henderson Horizon Euro Corporate Bond
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This bond fund has just received a new Bronze Rating. "The fund managers, Chris Bullock and Stephen Thariyan, seek to outperform the benchmark by an average of 1% per annum through an approach that is disciplined in analysing both top-down and bottom-up drivers of credit markets," said Morningstar OBSR. "The managers nevertheless exhibit significant pragmatism in implementing the strategies that are deemed most appropriate for the prevailing market conditions, underpinning their desire to outperform in different market conditions. We have a high opinion of their ability to deliver long-term outperformance."

Morningstar’s analyst fund ratings range from Gold to Negative. The ratings indicate whether Morningstar analysts are optimistic about a fund’s future performance. A Gold rating indicates Morningstar analysts think highly of a fund and expect it to outperform its peers and relevant index over a full market cycle of at least five years. Silver and Bronze ratings also indicate positive sentiment from Morningstar analysts. A Neutral rating indicates that Morningstar analysts believe a fund isn’t likely to deliver standout returns but also isn’t likely to significantly underperform. A Negative rating indicates Morningstar analysts believe the fund is inferior compared to its peers and has at least one flaw that is likely to significantly hamper future performance.

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About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.