Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: This week, fund analysts reveal a new ratings for Legg Mason, Oppenheimer and Standard Life as well as a downgrade for Allianz

Morningstar Analysts 30 January, 2018 | 9:34AM
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New Ratings

Legg Mason Western Asset US Core Bond – Silver

Irene Ruiz Espejo

Ken Leech, Western’s CIO, has been at the helm of this strategy since 1990, when the US version of this Irish-domiciled fund was launched. Leech is supported by three experienced co-managers and they leverage Western’s well-resourced macroeconomic and research teams. The process is robust and well executed, combining top-down macro views with security selection. The managers look for long-term fundamental value, aiming at identifying mispriced securities.

The fund emphasises the team’s highest convictions while maintaining a healthy level of diversification among its active bets. The fund strongly underperformed in 2008 but from thereon the managers have been delivering attractive risk-adjusted returns to investors. The fund’s deep and experienced resources, along with its robust and well-executed process, make this fund a strong contender in the USD Diversified Bond space. It earns a Morningstar Analyst Rating of Silver.

Oppenheimer Developing Markets Equity – Silver

Simon Dorricott

Although this fund was launched in only November 2016, the strategy it employs has a well-established process and a seasoned manager, who has been responsible for the sister US mutual fund, Oppenheimer Developing Markets, since 2007. As a result, this fund is a solid choice for emerging-markets exposure and earns a Morningstar Analyst Rating of Silver.

PGIM Jennison US Growth – Gold

Fatima Khizou

This fund was launched in October 2016, and while this is a short period to receive our highest Morningstar Analyst Rating, the fund is a mirror of US-domiciled Prudential Jennison Growth, which has a track record going back to 1999. This Ireland-domiciled fund’s performance track record has been extended based on the US mutual fund’s record.

The seven-member management team behind this US large-cap growth strategy is highly experienced and long-tenured and includes Jennison’s founder Sig Segalas, who has managed the same strategy for nearly 30 years. The team seeks to invest in companies that it believes have strong runways for growth over a multiyear horizon.

The team is willing to pay a premium for stocks it likes, so the portfolio tends to have higher average price multiples than its Russell 1000 Growth benchmark. The managers rely heavily on an experienced and talented analyst team that feeds ideas that can help distinguish the fund from its benchmark.

This purely bottom-up approach can result in substantial sector bets; for example, technology stocks represented over half of the portfolio’s assets in late 2017. Such positioning can lead to short term surges and drags, but over longer-term periods results have been outstanding, with returns ranking in the category’s top decile over various periods. With below-average fees, we believe this fund is a standout in the US equity space.

Standard Life Investments Global Smaller Companies – Bronze

Peter Brunt

Building on the long-standing ‘Focus on Change’ investment approach, we have reason to believe that SLI Global Smaller Companies, Standard Life Aberdeen's first entry into the global small-cap space, stands as a strong option for investors seeking exposure to smaller companies globally. With the support of a seven-strong small-cap team, headed by the highly experienced Harry Nimmo, fund manager Alan Rowsell has managed to add value through strong stock selection since launch in 2012. Despite slightly higher-than-average fees, we are confident in the fund’s ability to outperform in the long-run.

TB Amati UK Smaller Companies – Bronze

Samuel Meakin

This fund provides a somewhat differentiated choice for investors seeking UK small-cap exposure. The team responsible for the fund also manages AIM VCTs, giving the portfolio managers exposure to the smallest and newest companies listing on AIM.

This enables them to build a body of knowledge and analysis on such firms at an early stage, which can be a source of future idea-generation for this fund, and provides a potential edge for this investment process over peers’. The process, the experienced investment team, and the strong track record over time using this approach lead to our belief that the fund can continue to outperform over the long term.


Allianz Europe Small Cap Equity – Neutral

Ronald van Genderen

We take a more cautious stance after several changes in the team. The biggest loss to the team was the departure of co-lead portfolio manager Frank Hansen at the end of December 2017. Over the years, our conviction in this team had been largely built on his presence, as he was one of the most experienced managers within the European small-cap space. During 2017, two other team members, Peter Kraus and Michael Schopf, left Allianz as well.

On the other hand, the team has been strengthened, as it will cooperate more closely with three portfolio managers on the Allianz insurance business and has a new hire in the first quarter of 2018. The consistent bottom-up approach had been introduced by Hansen and focuses on investing in high-growth, high-quality stocks.

We are more cautious with the departure of Hansen and a disappointing performance over recent years, and we first want to see evidence that the approach remains untouched and consistently applied. Given the many changes within the team and our more cautious stance regarding the process going forward, we have downgraded the fund to a Morningstar Analyst Rating of Neutral from Bronze.

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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