Upgrades
Stewart Investors Asia Pacific – Bronze
Simon Dorricott
This fund's rating was downgraded early last year due to the announcement of an impending manager change, with the highly-experienced manager Angus Tulloch planning to pass responsibility to Ashish Swarup in July that year. Swarup is now the sole decision-maker on the fund and has clearly been improving his knowledge of non-emerging-markets countries such as Australia over the past 18 months. He has now put in place a weekly meeting to discuss this fund's holdings and positioning with Tulloch and one other manager. This, together with the stock-specific changes we have seen in the portfolio so far, has increased our conviction in the continued application of the established and successful process.
Downgrades
Legg Mason Royce US Small Cap Opportunity – Bronze
Lena Tsymbaluk
The managers’ focus on unloved micro-cap firms in turmoil and willingness to invest in companies with leverage makes this fund one of the most volatile offerings among small-cap and micro-cap peers. While we believe that the fund’s bets will likely continue to pay off in the long-term, its high-risk profile leads to steep losses during market downturns, which hampers risk-adjusted returns. In addition, the fund’s fees are higher than the median, reducing the potential for outperformance. There is still a strong team and disciplined valuation focus, thus we believe a Bronze rating is appropriate.
Vanguard FTSE Developed World ex UK Equity Index – Silver
Dimitar Boyadzhiev
We have downgraded this fund after reviewing the opportunity set available to investors. The fund stands as a strong investment proposition, offering a cheap and high-performing way to access developed-world ex-UK equity exposure. However, the global equity space is diverse, leaving opportunities for the best active fund managers to add value and outdo global equity indices in the long run. In terms of risk-adjusted performance, however, this FTSE Developed ex-UK Index fund has unswervingly ranked at the very top of the first quartile over the past three and five-year periods. Its ongoing charge of 0.15% is one of the lowest against both active and passive peers.
