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Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: This week, fund analysts reveal a new ratings for four Dimensional funds and an upgrade for Invesco

Morningstar Analysts 6 February, 2018 | 8:06AM

New Ratings

Dimensional Global Core Equity - Silver

Dimitar Boyadzhiev

This low-cost Dimensional fund is a solid option as a core portfolio holding. With over 7,200 holdings, the fund holds almost every stock in the developed-markets stock universe. The fund gives overweightings to stocks with lower valuations, smaller market capitalisations, and higher profitability based on research that stocks with those characteristics have tended to outperform over the long term. As a result, it achieves good balance between smaller companies’ tilt and quality characteristics.

Dimensional International Core Equity – Silver

Dimitar Boyadzhiev

This low-cost Dimensional fund is a solid option as a core portfolio holding. With nearly 5,700 holdings, the fund holds almost every stock in the developed-markets stock universe excluding the UK. The fund gives overweightings to stocks with lower valuations, smaller market capitalisations, and higher profitability based on research that stocks with those characteristics have tended to outperform over the long term. As a result, it achieves good balance between smaller companies’ tilt and quality characteristics.

Dimensional International Value – Bronze

Dimitar Boyadzhiev

This Dimensional fund offers a pragmatic way to invest in value stocks. Its portfolio construction starts with the cheapest 30% of the world’s developed stock markets, excluding the UK, as measured by price/book. The fund gives overweightings to stocks with lower valuations, smaller market capitalisations, and higher profitability based on research that stocks with those characteristics have tended to outperform over the long term. At the same time, the fund’s deep-value tilt increases risks and reduces opportunities in certain market environments. This limits our Morningstar Analyst Rating to Bronze.

Dimensional World Equity – Silver

Dimitar Boyadzhiev

We consider this low-cost Dimensional offering to be a solid one-stop shop for a global equity allocation. With nearly 9,500 stocks, the fund holds almost every stock from the developed- and emerging-markets stock universe. The fund gives overweightings to stocks with lower valuations, smaller market capitalisations, and higher profitability based on research that stocks with those characteristics have tended to outperform over the long term. The resulting portfolio is broad and well-diversified.

Fidelity Index UK – Silver

Hortense Bioy 

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.

iShares GBP Corporate Bond 0-5yr (IS15) - Bronze

Jose Garcia-Zarate

This fund is an interesting option for investors seeking shortened duration exposure to investment-grade corporate bonds denominated in sterling. The exchange-traded fund’s short- to medium-term maturity focus would be best suited for times of rising interest rates. The ETF tracks a benchmark that is well-diversified in terms of issuers and sectors, and its ongoing cost of 0.20% is competitive relative to the average clean share class for active funds with a short-duration mandate. The fund is well managed and barely uses securities lending. We have a positive view about the fund management team and of BlackRock as a parent company.

JPM Global Macro Opportunities (UK) - Bronze

Randal Goldsmith

This strategy is managed jointly by James Elliot, Shrenick Shah and Taleb Sheikh, who lead JPM’s global macro team. The approach gives the managers more discretion to increase risk than is typical of other macro-multi-strategy offerings. However, the global macro team is well-integrated within the broader JP Morgan business, providing strong oversight of risk taking and effective use of other teams by the managers. This, along with the managers’ nimble decision making, has led to strong added value from both sector thematic positioning and security selection.

JPM US Select - Silver

Jeffrey Schumacher

We initiate coverage on JPM US Select with a Morningstar Analyst Rating of Silver, in line with its US version, JPMorgan US Equity. The combination of a solid team, a robust process, and low fees support our conviction. Tom Luddy stepped back from this fund at the end of 2017, but Scott Davis, who has comanaged the strategy since 2016, continues to run 65% of the portfolio’s assets and Susan Bao, with the fund since 2001, is responsible for a sleeve of 10%. The remaining 25% is directly managed by the analyst team under the leadership of David Small. The team uses a robust and proven dividend-discount model, creating a diversified portfolio with limited stock-specific bets. Although this might sound like a recipe for mediocrity, the fund has consistently outperformed thanks to solid stock-picking across the board.

Uprades

Invesco Balanced-Risk Allocation – Bronze

Matias Möttölä

The fund’s experienced management team, led by Scott Wolle and Mark Ahnrud, uses a well-designed risk parity approach that has helped the fund hold up well through challenging markets. The team has also introduced intelligent features and updates to their methodology to respond to structural changes in financial markets. Investors should be aware that the fund’s approach will likely lead to wide performance swings relative to traditional 60/40 portfolios of stocks and bonds as it is much less driven by equities, whilst having one-third of its risk coming from commodities, as per its strategic allocation.

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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