Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: In a bumper week, fund analysts reveal new ratings for five funds, downgrade a suite of Japan equity ETFs and upgrade JOHCM UK Dynamic

Morningstar Analysts 18 September, 2017 | 2:30PM
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New Ratings

Amundi ETF Japan TOPIX JPY A/ISilver

Kenneth Lamont

We have initiated coverage of this fund with a Silver Rating on the basis that it provides the broadest and most comprehensive low-cost beta exposure within a category in which passive funds have performed strongly. With an ongoing charge of 0.20%, the fund is considerably cheaper than active peers and directly comparable passive offerings.

BNY Mellon Global Real ReturnSilver

Randal Goldsmith

This fund is the offshore EUR version of the Newton Real Return fund that already has a Morningstar Analyst Silver Rating. Even though the offshore fund has a different named manager – Aran Pataki - investment decisions are taken by the whole team led by its highly experienced head, Iain Stewart, and are identical other than on currency positioning. In over a decade running this multi-asset real return strategy, the team has met its return target with a high degree of consistency, and done a good job of protecting investors’ capital during market corrections.

iShares MSCI Japan GBP Hedged ETF AccNeutral

Kenneth Lamont

Although this ETF offers efficient, currency-hedged exposure to a broad and representative benchmark, the hefty price tag and the existence of funds tracking broader and more representative cap-weighted indices mean that we have no conviction in the fund. With an ongoing charge of 0.64%, it is also one of the most expensive currency-hedged ETFs tracking Japanese equities.

Lyxor Japan TOPIX DR ETF D-EUR A/ISilver

Kenneth Lamont

This fund has been awarded a Silver Rating because it offers the broadest and most comprehensive beta exposure within a category in which passive funds have performed strongly. With an ongoing charge of 0.45%, though, the fund is considerably more expensive than comparable offerings. Nonetheless, this fund still maintains a considerable cost advantage when compared with active peers.

Templeton Global BalancedNeutral

Matias Möttölä

This fund is set to have around 65% of assets in equities, selected by Australian-based manager Peter Wilmshurst based on the input from Franklin Templeton’s experienced equity team. The rest of the portfolio is split between bonds. chosen to mimic Templeton’s Global Bond model portfolio, and cash. While we think highly of fixed-income leader Michael Hasenstab, we think the fund lacks other major competitive advantages that would lift it above its Morningstar USD Moderate Allocation category peers.

Templeton Global IncomeBronze

Matias Möttölä

This fund combines two portfolios invested with distinct styles: stock picks are taken by Franklin Templeton’s experienced equity team following their patient value style, while the fixed-income portfolio is formed based on the benchmark-agnostic Templeton Global Total Return Bond strategy led by Michael Hasenstab, whom we hold in high regard. The third source of potential alpha is an asset allocation decision taken monthly. Overall, we think investors with an appetite for a less-constrained approach in the Morningstar USD Moderate Allocation category have much to like here.


AXA WF Global Inflation BondsBronze

Mara Dobrescu

Despite a change of lead manager, investors remain in competent hands. Marion Le Morhedec, who had managed the fund since 2006, moved to a different role within AXA Investment Managers in November 2016 and was succeeded by Jonathan Baltora, her comanager since 2010.

We are reassured by his experience and long-term involvement with the strategy, as well as by AXA IM’s efforts to shore up the inflation expertise through additional recruitments. Meanwhile, the investment process remains efficiently executed, and the team has gradually built a convincing track record against peers. The fund’s cheap fees also provide a tailwind for performance and, combined with a solid team and the strong stewardship of the parent company, have enabled us to build conviction in its potential for the long term.

JOHCM UK DynamicSilver

Samuel Meakin

Our conviction in this fund has grown over time as manager Alex Savvides has continued to show skill and discipline in applying and adhering to the strategy that he developed for this mandate. He has also demonstrated a depth of insight and analysis that helps him achieve his aim of investing in underperforming companies where he sees evidence that company management are implementing changes which will lead to improving returns over time.

Savvides has managed the fund since its launch in 2008, building a strong performance track record over this time, and is part of the well-regarded UK desk at JOHCM.

PIMCO GIS US High Yield BondSilver

Niels Faassen

In March 2015, this fund’s benchmark was changed from the BofA Merrill Lynch U.S. High Yield BB-B index to the BofA ML U.S. High Yield Constrained index that encompasses the entire high-yield credit rating spectrum, making the fund less conservative than it used to be.

We will monitor how this increased latitude in CCC bonds will be used in practice, but we are not overly concerned, given our confidence in the firm’s credit research capabilities. PIMCO High Yield’s experienced management team, led by Andrew Jessop, plies a straightforward and risk-aware process. The firm’s deep analyst bench further supports our increased conviction in the fund.



Fidelity Index JapanBronze

UBS ETF MSCI Japan JPY A DisBronze

Vanguard Japan Stock IndexBronze

Kenneth Lamont

These ratings have been downgraded to reflect a lower level of confidence in the use of the MSCI Japan Index as an investment strategy. While we expect that these funds will continue to outperform their Morningstar category peers over a full market cycle, we withhold our highest levels of conviction for low-cost passive funds in the Japan large-cap category that track the broadest and most representative indices, such as the MSCI Japan IMI and TOPIX.

iShares MSCI Japan ETF USD DistNeutral

Kenneth Lamont

We have downgraded this fund's rating to Neutral to reflect a lower level of confidence in the use of the MSCI Japan Index as an investment strategy, coupled here with an unreasonably high management fee. We prefer funds in the Morningstar Japan Large-Cap Equity category that track the broadest and most representative indices, such as the MSCI Japan IMI and TOPIX. Combined, these factors limit our conviction in the fund's ability to outperform its Morningstar Japan Large-Cap Equity category peers over a full market cycle.

Kames Strategic BondNeutral

Ashis Dash

Kames Strategic Bond and Kames Strategic Global Bond have a revamped manager lineup after the departure of longtime comanagers David Roberts and Philip Milburn in August 2017. Juan Valenzuela joined Kames in October 2015 and was named comanager of Kames Strategic Bond and support manager on Kames Strategic Global Bond in January 2016; now he co-manages both funds. He has been joined by Alex Pelteshki, who joined Kames in August 2014 and focuses on investment-grade credit.

They are backed by government bond expert Colin Finlayson who has been with Kames since 2000 and served as a support manager for this strategy since late 2011 and high-yield specialist Jack Holmes who joined the firm in September 2016. While the lineup brings complementary skills, the managers have a limited history of working together. We would like to see their implementation of this flexible strategy in a greater variety of market conditions before building conviction here. The funds’ Morningstar Analyst Ratings have thus been moved to Neutral from Under Review.

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.

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