Morningstar Fund Ratings: Weekly Round-up

ANALYST RATINGS: This week fund analysts reveal new ratings for JPMorgan, upgrades for iShares and downgrades for Templeton

Morningstar Analysts 1 August, 2018 | 8:27AM
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New Ratings

Brandes Emerging Markets Value – Silver

Mathieu Caquineau

This fund benefits from a consistent deep-value approach and is managed by a seasoned and stable five-person investment committee. There’s been little turnover on the broader team that directly supports it through in-depth fundamental research. The team looks patiently for bargains and has a very long-term investment horizon.

The fund’s atypical positioning has often weighed heavily on near-term relative returns versus the MSCI Emerging Markets Index. That said, the strategy has beaten the MSCI EM Value Index and other value-oriented peers since its inception while the longer track record of the Canada-domiciled fund is also comforting. Uneven returns usually come with a deep-value approach, and patience is required for investors to reap the benefits of the strategy, but we think this fund has many arguments in its favour.  

Capital Group AMCAP – Gold

Mathieu Caquineau

Capital Group AMCAP is managed by a six-person team with decades of experience in US equity and access to a deep analyst bench. This team also runs the same strategy sold in the United States under the American Funds brand and has built an impressive long-term track record. The portfolio is invested in reasonably priced growth stocks held for the long haul.

Thanks to the multimanager approach, team members are able to stick with their highest-conviction picks, while the combination of portfolio sleeves mutes the fund’s ups and downs. The managers' ability to hold cash and bonds when compelling investment opportunities are scarce, provides an additional volatility check. Finally, fees are very reasonable for an actively managed product.

JPMorgan US Aggregate Bond – Silver

Mara Dobrescu

JPMorgan US Aggregate Bond's lead manager, Barb Miller, ran institutional assets before she assumed lead portfolio management responsibilities on this fund following the 2015 departure of her long-tenured predecessor, Doug Swanson. Miller and her deep bench of analysts and portfolio managers have stuck to the fund’s strategy.

The team doesn’t bet on interest rates and focuses on finding value in securitised sectors instead – a feature that distinguishes the fund from most USD diversified bond Morningstar Category peers. The fund has delivered category-topping risk-adjusted returns over the team’s tenure, and its reasonable price tag also adds to its appeal.

Nedgroup Global Cautious – Bronze

Barbara Claus

The fund has been managed since March 2015 by Chartwell, a US-based investment boutique. George Cipolloni co-manages the strategy together with Mark Saylor, and both receive help from one analyst. That's a relatively thin group, but we think that both are capable managers.

Cipolloni became a named manager on the fund in May 2006 and has established an excellent long-term record in the fund’s US-sibling, Berwyn Income, since then. In fact, he and Saylor have worked on the fund since joining the firm in 2002 and 2007, respectively. We also like the team's disciplined and risk-conscious approach, which aims to avoid hot parts of the market and buy what is out of favour.

Old Mutual UK Alpha (Ire) – Silver

Simon Dorricott

This fund mirrors its UK-domiciled namesake, Old Mutual UK Alpha. It is managed by Richard Buxton, a seasoned manager with over 30 years of investment experience. He also has CEO responsibilities at OMGI, but he clearly remains engaged with the investment process, working closely with Errol Francis and Ed Meier.

The trio has successfully worked together for over 10 years and further support is provided by the rest of the UK team. Buxton uses a process that is established and proven, combining stock-level analysis with top-down insights. We believe this fund benefits from the stewardship of a talented UK equity manager, who enjoys strong backing from the wider team at the firm.

Stewart Investors Worldwide Sustainability – Silver

Ronald van Genderen

This UK-domiciled fund is similar to the Australia-domiciled fund, which is already rated Silver. Although the strategy is reasonably new, launched in November 2012, the crux of the process driving it has been known to us since the 1990s. And it is one we admire. It is based on extensive bottom-up, fundamental analysis with a heavy focus on the sustainability of earnings and business models. It leads to a portfolio of around 50 names with some notable biases.

First, there is a significant allocation to emerging markets, with allocations to the United States and other developed markets typically underweight. At the sector level, consumer staples and healthcare companies dominate, and the portfolio will typically have a smaller-cap tilt to the market. Although these present risks, we believe the team has the skill and conviction to manage them.

The head of this fund is Nick Edgerton, but there is significant teamwork that goes into most investment decisions. The experienced and insightful David Gait is co-portfolio manager and provides leadership throughout the group. Negating any key-person risk is the stability of the wider team of 12 investors.


GS India Equity Portfolio – Bronze

Jan Neluo

Hiren Dasani took over as lead manager of the fund in April 2017, after having comanaged the fund since June 2013. We are pleased to see that he has stayed true to the time-tested, quality-focused but valuation-aware investment process that has delivered impressive results since his involvement. The combination of a solid manager, a resourceful research team, and a well-executed process makes this fund a strong option within a competitive category.

iShares MSCI EMU ETF (CEU) – Gold

Kenneth Lamont

Following a fee cut to 0.12% from 0.33% in June 2018, this fund is now one of the very cheapest when compared with both passive and actively managed peers. This change means that the fund is one of the standout options for investors seeking eurozone large-cap equities, and we believe it will comfortably outperform its peers over a full market cycle.

The fund has also comfortably beaten its average active and passive peer on a risk-adjusted basis over three- and five-year periods. We expect performance to be boosted as a result of the recent fee cut.

The fund offers broad and representative cap-weighted exposure to eurozone large-cap equities. With around 240 constituents, including a number of mid- and small caps, the MSCI EMU Index stands as a much better proposition for buy-and-hold investors than the more popular but mega-cap-heavy Euro Stoxx 50 Index.

iShares has a seasoned passive management team befitting of the dominant exchange-traded fund provider in Europe. The team can leverage market-leading technology and a well-oiled securities-lending program while managing its funds. For these reasons, this fund has been upgraded to a Morningstar Analyst Rating of Gold from Silver.

Mercantile Investment Trust (MRC) – Bronze

David Holder

We believe that Mercantile is an improving proposition for investors. This is based upon the consolidation of the management team and a more coherent application of the investment process under the leadership of Guy Anderson. The changing team dynamic, including clearer accountability of decision-making, continues to gain traction, which we feel has positive consequences for portfolio construction and process implementation.

We are encouraged by these developments, which are feeding through into improved returns. Investors also benefit from the board’s ongoing focus on reducing fees, substantiating its role in overseeing shareholder interests. What investors pay here is exceptionally competitive.


Murray International Ord (MYI) – Silver

David Holder

Having been the named manager of Murray International since June 2004 and involved with the fund since the 1980s, Bruce Stout has seen firsthand how the team has evolved with successive acquisitions by Aberdeen. Thus, we are relatively sanguine about the effects of the merger between Standard Life and Aberdeen on his investment compass. But Stout does draw from the investment output across the wider group, so he will be impacted by changes to the regional teams. The merger has created uncertainty for investors in terms of how the respective investment processes will evolve and who ultimately will end up implementing them.

Our ongoing conviction here is based firmly on Stout’s long-term continuity and expertise, so we still see this fund as a solid choice for investors. However, in drawing on ideas from a pool of portfolio managers and analysts, where refining team interactions is a work in progress, our conviction has slightly diminished.

Templeton Asian Bond – Neutral

Don Yew

While the fund is helmed by highly experienced comanagers Michael Hasenstab and Vivek Ahuja and supported by a well-resourced Global Macro team at Templeton, we believe the fund’s narrower investment universe – versus the global and emerging-markets mandates – limits its ability to fully harness the Global Macro team’s intellectual strength, which is a key feature of this conviction-based process. Furthermore, the fund’s expensive fee level of 1.10% is a headwind to performance.

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
Brandes Emerging Markets Value I USD13.78 USD-1.96Rating
Capital Group AMCAP (LUX) Z21.11 USD-2.82Rating
GS India Equity I Inc USD48.63 USD0.46Rating
JPM US Aggregate Bond A (dist) USD11.31 USD-0.32Rating
Mercantile Ord248.50 GBX-0.60Rating
Murray International Ord255.50 GBX-0.58Rating
Nedgroup Inv Funds Global Cautious A Acc1.97 USD0.33Rating
Templeton Asian Bond I(acc)USD17.01 USD-0.20Rating

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