Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: This week fund analysts reveal an upgrade for Fidelity and downgrades for BlackRock, Fidelity, Man GLG and Invesco

Morningstar Analysts 26 June, 2018 | 7:47AM
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Upgrades

Fidelity Emerging MarketsSilver

Simon Dorricott

Fidelity Emerging Markets has been increased to a Morningstar Analyst Rating of Silver from Bronze. Nick Price has been at the helm of this strategy since 2009, and this fund since 2010, and he sits at the top of a multi-layered research process that effectively draws upon the considerable resources of the Fidelity group. We continue to hold Price in high regard, and we have seen our conviction in the fund increase as we have become more confident in the portfolio-construction process and in the regional portfolio management team that provides support.

Downgrades

BlackRock Frontiers OrdNeutral

Lena Tsymbaluk 

The board voted to widen the remit of BlackRock Frontiers Ord to include some emerging-market countries from April 1, 2018. The reason for this is the constant evolution of the MSCI Frontier Markets Index and continuous reclassification of frontier countries into emerging. In addition, there is a change to the index, which is going to be MSCI Emerging Markets ex Selected Countries + Frontier Markets + Saudi Arabia. While the rationale for the change of the remit and benchmark seems sensible, this represents a key modification to the fund’s investment universe, and it remains to be seen how to portfolio evolves as a result.

The change has introduced emerging markets that managers are not very familiar with such as Malaysia, Thailand, Indonesia, the Philippines, and Chile. The managers will have to build knowledge in those markets and more time is needed to see whether they can add value there. Therefore, a Morningstar Analyst Rating of Neutral is a better reflection of our conviction in the fund at this stage.

Fidelity Euro BalancedNeutral

Barbara Claus

We have downgraded the Morningstar Analyst Rating of Fidelity Euro Balanced to Neutral from Bronze. While we continue to hold managers Eugene Philalithis and Nick Peters in high regard, we have taken a more cautious stance toward the overall fund given its overhaul of the equity sleeve, which accounts for the lion’s share of active returns. Fidelity Euro Blue Chip used to be the only strategy in the equity sleeve, but that fund’s recent strategy change to an analyst-driven portfolio led to a downgrade of its Analyst Rating to Neutral from Bronze.

So, Philalithis reduced Fidelity Euro Balanced’s allocation to Fidelity Euro Blue Chip to 34% of the equity portion. For the remainder, he added in-house European single-country funds, and an additional country-allocation model is currently being developed. We prefer to watch the fund from the sidelines until we have seen more of the implementation of the new approach.

Invesco BondNeutral

Irene Ruiz

Lead portfolio manager Josef Portelli stepped down in May 2018, at which point the fund was placed Under Review. He had been managing it with Lyndon Man since April 2016, when previous portfolio manager Mark Nash left Invesco. Man remains in place and will be joined at the helm by Gareth Isaac and Thomas Sartain.

The two new additions are experienced investors who worked together at Schroders, but the resources around them are different here. Furthermore, there have been a number of personnel changes on the fund in recent years, so we are downgrading its Morningstar Analyst Rating to Neutral.

Man GLG Strategic BondNeutral

Man GLG Flexible BondNeutral

Ashis Dash

Simon Finch joined Man GLG in April 2018 and took over as lead manager of Man GLG Strategic Bond and Man GLG Flexible Bond after previous manager Jon Mawby resigned. Finch is supported by Andy Li, who has been comanager on these two funds since May 2014. While the two continue to employ a high-conviction approach that combines their top-down and bottom-up views, the portfolios are likely to see some changes under Finch.

We need to see how well he utilises the firm’s fixed-income resources, how his partnership with Li develops, and how the portfolios evolve before building conviction. We give the funds Morningstar Analyst Ratings of Neutral for the time being. 

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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