Morningstar Fund Ratings: Weekly Round-Up

A plethora of upgrades in this week's ratings round-up, including coveted Gold ratings for two JPMorgan funds

Jeffrey Schumacher 21 August, 2019 | 9:36AM
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analyst rating

New Ratings

M&G (Lux) Optimal Income - Silver

Evangelia Gkeka

We initiate coverage on M&G (Lux) Optimal Income with a Morningstar analyst rating of Silver. This fund was launched as part of M&G moving non-sterling share classes into Luxembourg vehicles in order to protect non-UK investors in case of Brexit. This version is a sibling of the long-standing UK version, where Richard Woolnough, a well-resourced credit analyst team, and a time-tested process are all aspects that lead to our positive view. Performance of both funds in base currency should closely match each other, meaning that we’re confident on continued execution of the investment approach in the Sicav. 


BNY Mellon Multi-Asset Balanced - Bronze from Neutral

Rajesh Yadav

Since taking over as lead manager in January 2018, Simon Nichols has transformed this offering and brought it in line with the BNY Mellon Newton Global Balanced strategy, which he has successfully managed since 2013. As part of the multi-asset team, he is well integrated into the broader Newton approach, drawing on the house view set by the thematic and global strategy groups, and taking stock ideas from its well-resourced team of global industry analysts. Following a successful transition, along with competitive fees, the strategy has been upgraded to a Morningstar analyst rating of Bronze from Neutral.


JPMorgan Asean Equity - Gold from Silver

JPMorgan Asean - Gold from Silver

Jan Nel

The Morningstar analyst rating of JPMorgan Asean has been upgraded to Gold from Silver based on our strengthened conviction in head of Asean equity Pauline Ng and her team of country specialists. Ng is a highly experienced and impressive portfolio manager who has proved herself over many market cycles and who invests in the fund alongside investors. She is backed by substantial resources in the form of a five member Asean team and the 100-plus emerging-markets and Asia-Pacific, or Emap, team. The process follows the Emap-wide strategic classification process that we rate highly, and we also value the topdown input from Ng and the Asean country specialist, given the countries within the region tend to exhibit idiosyncratic risks. Ng has been beating her peers comfortably, and this product is cheap. Overall, the strategy exhibits clear advantages across the board and deserves our top rating. 

JPMorgan Pacific Equity - Silver from Bronze

Andrew Daniels

JPM Pacific Equity is led by a solid management duo, backed by a deep team and follows a well-codified approach. Aisa Ogoshi has led the Sicav version of the strategy since June 2012 and took over the HKUT vehicle in mid-2015. Ogoshi is joined by back-up manager Robert Lloyd, who joined JPMorgan in 2005. Not only do Ogoshi and Lloyd provide solid stock-specific insights during meetings, but Ogoshi’s steadiness also complements Lloyd’s zeal. Providing further comfort is the fact that they are well supported by the 100-member emerging markets and Asia Pacific equities team. The managers apply JPMorgan’s quality-growth approach - which is well-codified and disciplined - seeking to own firms with sustainable or improving returns on capital that are run by strong management teams. The resulting portfolio has 50 to 60 stocks, with limited constraints at the country or sector levels relative to the MSCI AC Asia Pacific Index, so active share trends higher than 75%. The strategy has delivered for investors over time, and greater comfort in its leadership and approach lifts the Morningstar analyst rating to Silver from Bronze.

JPMorgan US Value - Silver from Bronze

Jeffrey Schumacher

A change of manager and strategy drives an upgrade for JPM US Value to a Morningstar analyst rating of Silver from Bronze. Lead manager Jonathan Simon stepped down from managing JPM US Value in May 2019. As of June 2019, long-tenured and insightful manager Clare Hart took the helm and transformed the fund to match the philosophy and style applied at Silver-rated US-domiciled JPMorgan Growth and Income, which she managed successfully since March 2004. Andrew Brandon became co-manager in February 2019, having served as an analyst at the firm since 2004. He retains an analyst role on the Gold-rated JPMorgan Equity Income, which is also managed by Hart. The transformation to Hart’s style of investing means that the portfolio has a stronger quality focus, a higher allocation to large-cap stocks, and a moderate value tilt compared to how the fund was managed under Simon. The track record that Hart has built at JPMorgan Growth and Income is strong in both total and risk-adjusted terms. The fee level charged here is comparable to the US-domiciled fund. Hence, it gives a good indication of what investors in this fund can expect. We believe the strategy is a strong contender for continued long-term success. 


Artemis Global Income - Neutral from Bronze

Jeffrey Schumacher

Although Artemis Global Income’s distinctive character can give it an edge, we have reservations around the strategy’s execution, liquidity, and risk management, which underpins a downgrade of its Morningstar analyst rating to Neutral from Bronze. The fund still benefits from portfolio manager Jacob de Tusch-Lec’s experience, independent thinking and willingness to go where competitors won’t, while his increased analyst support is reassuring. The greatest appeal of the fund is its distinctiveness. The manager avoids the typical names in dividend portfolios, invests down the market-cap ladder, and is willing to have his macro views drive portfolio positioning. Although these characteristics can give the fund an edge, there are several factors that reduced our confidence. The fund sometimes invests opportunistically in shorter-term opportunities that increase portfolio turnover and for which it might be harder to conduct the same rigorous bottom-up research as for core holdings, given the resources available. We’ve always been vigilant about the strategy’s capacity and the liquidity of the portfolio, as the fund’s assets have significantly grown over time while maintaining its bias towards small- and mid-caps. The fund holds multiple stocks that are less liquid or where it owns a larger stake of the outstanding share capital. Although liquidity risks look manageable, we’re less convinced about the rationales for some of these holdings. Another aspect that can be improved is risk management, which has not been as effective as we thought. This has also led to a deterioration of the risk-adjusted track record, as the fund’s performance has been erratic versus peers and the MSCI World High Dividend Yield Index in recent years. 

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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About Author

Jeffrey Schumacher  is a Fund Analyst with Morningstar Benelux.

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