Morningstar's Manager Check Up

REAFFIRMED RATINGS: Morningstar's Jonathan Miller explains why analysts positively rate Schroder Oriental Income, Threadneedle European High Yield and Heptagon Yachtman

Jonathan Miller 22 November, 2017 | 10:59AM
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Jonathan Miller: Welcome to the Morningstar manager check-up for the latest views from our fund research team.

The Schroder Oriental Income investment trust (SOI) benefits from a seasoned investor in Matthew Dobbs, who’s been managing money in the area for over 30 years. Stock selection is at the heart of this approach with research carried out through the in-house network of 40 analysts in the region. What they do is rank stocks providing a framework for Dobbs to work from. The ranking criteria take into account areas such as company strategy, cash flow and earnings growth.

The portfolio is then constructed based on a yield requirement, via stocks that have strong income and capital growth potential. Overall we hold Dobbs in high regard, he makes excellent use of the wide resources at hand, and has a solid process that’s led to an excellent long-term track record, meaning the trust holds a Morningstar Analyst Rating of Silver.

The Threadneedle European High Yield bond fund is run by the experienced duo of Barrie Whitman and David Backhouse. They’re supported by a team of five dedicated high-yield credit analysts and a financials analyst. With investments mainly focused in Eurozone countries, this fund is different to many in the peer group. The investment approach is primarily bottom-up and the duo’s benchmark excludes subordinated financial debt.

While they invest here at times, it’s really at the margin, and there’s generally significantly less exposure to financials than peers. We appreciate the fund won’t keep up in strong markets but it has held up much better during challenging markets. All said, we like this well-executed, straightforward strategy and the experienced team at the helm, so the fund holds a Morningstar Analyst Rating of Bronze.

The Heptagon Yacktman fund is a long-standing American strategy that focuses on companies with predictable, recurring revenue streams. It’s co-managed by Stephen Yacktman and Jason Subotky, and given their process the portfolio is biased to relatively steady, strong franchise brands. This is especially true in consumer names, which account for nearly 50% of the portfolio. By also focusing on price multiples, their view for the last three years has been that they can’t find cheap stocks so cash levels have been at around 20% or more.

This has led to underperformance. But we saw similar performance patterns in the late-1990s' internet boom and again during the mid-2000s' bull market. However, it’s in market falls that the strategy thrives, where it’s produced outstanding relative returns. We appreciate there could be more short-term pain if markets rally, but the managers really stick to their knitting, so the fund retains its Morningstar Analyst Rating of Silver.

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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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Heptagon Yacktman US Equity C USD Acc361.93 USD0.26Rating
Schroder Oriental Income Ord288.00 GBX0.70Rating

About Author

Jonathan Miller  is Director of Manager Research, Morningstar UK

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