Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: This week fund analysts reveal upgrades ratings for Amundi, iShares, Invesco and Templeton

Morningstar Analysts 10 April, 2018 | 7:12AM
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Amundi ETF Japan Topix ETFGold

Kenneth Lamont

This exchange-traded fund is one of our favourite funds within a category in which passive funds have performed strongly. It offers the broadest and most comprehensive beta exposure available for an impressively low fee. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Gold from Silver.

At the time of rating, the fund has not yet registered a three-year track record, but it has performed strongly since it launched in September 2015. Since its inception, the fund has been the best performing ETF tracking the Topix index. Other more expensive ETFs tracking the same index have recorded impressive risk-adjusted performances relative to category peers over three, five, and 10 years.

Because of its sprawling coverage, the Topix Index offers the most representative cap-weighted exposure to Japanese large-cap equities. Including almost 2,000 Japanese companies, it approximates the total market exposure.

The iShares Euro Stoxx (DE)Gold

Kenneth Lamont

The fund stands out as one of our top picks within the eurozone large-cap equity Morningstar Category. We look favourably upon its breadth of exposure, low management fee, and consistently impressive performance relative to active peers. To reflect our high level of conviction in the strategy, we have upgraded this fund to a Morningstar Analyst Rating of Gold from Silver.

Harmonisation measures implemented at the beginning of 2018 have brought the tax treatment of Germany-domiciled funds in line with those of other EU countries. As a result, reported returns for this Germany-domiciled fund will be lower than those registered historically.

The change also means that returns from this point can now be compared directly with those of other Europe-domiciled funds. Because of differences in withholding-tax treatment between the methodology of the index and that of the fund, we still expect this fund to outperform its benchmark.

The exchange-traded fund offers broad and representative cap-weighted exposure to eurozone large-cap equities. With around 300 constituents, including a number of mid- and small caps, the Euro Stoxx Index stands as a much better proposition for buy-and-hold investors than the more popular but mega-cap-heavy Euro Stoxx 50 Index.

Invesco Japanese Equity AdvantageSilver

Lena Tsymbaluk

Invesco Japanese Equity Advantage fund benefits from the experience of lead manager Tadao Minaguchi, who has successfully managed this fund for more than 10 years. He is supported by a close-knit team of five analysts, which has grown with the strategy. The manager uses a unique approach to Japanese equity investing, which he developed in 2003.

In a market dominated by more traditional style-based approaches such as value/growth, Minaguchi’s philosophy focuses on high-quality companies with intangible values that generate substantial free cash flow. Minaguchi believes that intangible assets such as brand, superior research, and customer loyalty are difficult to replicate and allow companies to sustain a competitive advantage.

The approach has proven successful over different market cycles and has resulted in impressive three-, five-, and 10-year returns. We believe the fund stands as a superior investment proposition within the Japanese equity peer group and have therefore upgraded it to a Morningstar Analyst Rating of Silver.

Templeton Asian GrowthNeutral

Germaine Share

We have upgraded Templeton Asian Growth to a Morningstar Analyst Rating of Neutral. We are encouraged by the appointment of Sukumar Rajah, a Franklin Templeton veteran with more than 20 years of investment experience. He has laid out a few positive changes for the fund. On the people front, he aims to improve communication between the management team and the analyst team to ensure that the best ideas are being utilised.

The investment process also benefits from an upgrade, with Rajah expecting to place a greater focus on bottom-up stock selection, keener consideration for higher quality stocks, and strengthen risk management. This is a meaningful improvement from former manager Allan Lam, who took excessive risks and lacked clear initiatives to step up for investors despite the fund’s deteriorating track record. The fund was previously rated Negative.


Guinness Global EnergyNeutral

Fatima Khizou

The outcome delivered to this fund’s holders through various time frames has been disappointing. The management team’s approach, which combines top-down and bottom-up analyses, results in a concentrated, benchmark-agnostic, and highly volatile portfolio with a greater emphasis on valuation than quality. Alpha was mostly generated during the 2009 and 2010 periods.

Over the long haul and since Waghorn began his tenure here, the fund has posted weak results that significantly trail the benchmark as a result of both sector-positioning and stock-picking. The latter has particularly been poor across all major energy segments and over different periods.

Our conviction in the managers’ ability to add value for investors through stock-selection and implementation of the top-down views has diminished. These factors combined with high expenses see us drop the fund’s Morningstar Analyst Rating to Neutral from Silver.

Moved to Under Review

Fidelity Euro Balanced

Barabara Claus

We have placed Fidelity Euro Balanced under review because of significant changes in its underlying equity strategy, which accounts for around 60% of the portfolio. Fidelity Euro Balanced was previously rated with a Morningstar Analyst Rating of Bronze. Fidelity has decided to change the investment approach on Fidelity Euro Blue Chip and transition it to an analyst-driven portfolio. We will assign a new rating to the fund after we have evaluated the implications of the change.

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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