Morningstar Manager Check-up

Morningstar head of fund research Jonathan Miller talks senior editor Holly Black through fund ratings changes, including an upgrade for Aberdeen Japan

Holly Black 1 August, 2019 | 12:39PM
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Holly Black: Welcome to the Morningstar Manager Check-Up. I'm Holly Black. With me is Jon Miller. He's Head of Fund Research at Morningstar.

Hello.

Jonathan Miller: Hi, Holly.

Black: So, we're going to look at a few funds whose ratings you've been reassessing. Where would you like to start?

Miller: Sure. So, let's start with upgrades, some good news. The Aberdeen Japan Equity Fund. So, Aberdeen have got the presence in Asia. As I'm sure a lot of our viewers know here in Japan, the team's been fairly stable and well-resourced over time. The head of the team, Kwok Chern Yeh, has been there for quite a long time. And the quality investment philosophy is what we see shining through which is quite common at Aberdeen. We feel the process in terms of looking for those sorts of companies has delivered. There's been a general stability on the team. And overall, although stock selection wasn't that great last year, we take a long-term view. And when you bring those elements together, our decision was that actually it should reward an upgrade to Bronze from previously being Neutral.

Black: It's quite a big step to go from Neutral to Bronze. It's like you're on the leaderboard all of a sudden?

Miller: Yeah. I mean, our assessment is that with a definition that with what we call the medalists, the Gold, Silver or Bronze, we have some sort of conviction through our qualitative assessment as well as the price that the fund charges, that it can outperform, beat peers and benchmarks on a forward basis over the long term. Neutral, it's more, we haven't got that conviction. So, overall, we think that there's the elements that come together to have a positive view overall on that strategy.

Black: Now, you don't give out upgrades willy-nilly, do you? So, that's the only one we've got this week?

Miller: That's true. I mean, the rest of the two we'll look at are actually maintain the rating, both positive ones, maybe we will start in the fixed income space. So, BGF, so BlackRock Global Corporate Bond Fund. There, the manager Andreas Doerrenhaus has been in the team for a while. And there's been a few changes in the senior management on what they call their fundamental team there.

So, these are the team that really look at stock picking and taking views and placing bets on where they should position the portfolios. But we think that generally the senior level of the team has got some important people still in place. And then, when you look at the 40-odd analysts globally coming up with ideas, how they assess risk, how they bring ideas into the portfolio, security selection, sector rotation, we feel that we should maintain a Bronze rating, so still positive of some of the changes there on that BGF Global Corporate Bond Fund.

Black: And does that help that BlackRock has got kind of good credence in the fixed income space?

Miller: I think credence is one thing, you know, what you might think from afar. But we do the work by going in to see the managers, finding out about their teams. We have representation from Morningstar globally in terms of analysts, so we know different parts of the team, so the global team that we have some in the US, some in Europe, and we bring inputs from other analysts to help build our view overall.

Black: And what's the final fund we're looking at?

Miller: The final one, the Ardevora Global Long Only Fund. So, it's an equity fund. And it's managed by William Pattisson and Jeremy Lang. So, they've developed quite, what we feel, is a unique approach and it's deeply embedded into cognitive psychology. So, they look and do some – a lot of work and screening and metrics on what the sell-side in the market and buy-side are doing and try and think differently. So, what you get is a portfolio that's shaped very differently to the market. Quite interestingly, they actually have about 150 to 200 positions, each of equal sizing. What they don't want to do is bring biases through in their stock selection either. But what you see over the long term has been the stock selection driving performance. So, there's a bit of growth embedded in there, a bit of mispricing they think the market has missed. So, they bring quite a few bits together which we think is something quite different out there in the market.

Black: When a fund does have a unique strategy like that, is that harder for you to assess them to put a rating on?

Miller: Well, when there's a – let's say, managers look at quality growth, so looking for growth coming through in companies and some people willing to pay high multiples for that these days. You can look at something and think they're quite similar. When it's unique, you do have a bit of a relative basis that can be a bit – not quite difficult, but different to assess than the rest of the cohort. But we've got to think as well that unique and something different can bring something to the market, especially when people are looking at things that seem to go in the same direction. A lot of people were heavily invested in growth funds, maybe need to look a bit more at how diversified they are. And we think here, diversification comes through, but still the stock selection that's been rewarding over the long term.

Black: Thank you so much for your time.

Miller: You're welcome.

Black: Thanks for joining us.

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
Rating
Ardevora Global Long Only Eq C GBP Acc2.56 GBP-0.64Rating
ASI Japanese Equity I Acc263.87 GBP0.47Rating
BGF Global Corporate Bond D2 USD14.95 USD0.11Rating

About Author

Holly Black  is Senior Editor, Morningstar.co.uk