Morningstar Manager Check-up

VIDEO: Morningstar's Jonathan Miller discusses three rated funds undergoing change

Holly Black 30 October, 2019 | 11:03AM



Holly Black: Welcome to the Morningstar "Manager Checkup". I'm Holly Black with me is Jon Miller from the Morningstar Manager Research team. Hello.

Jonathan Miller: Hello Holly.

Black: So, we've got three funds to check up on today, where are we starting.

Miller: So, with three funds we've got a few different things going on with them. They all retained their ratings in our most recent reviews, but various aspects have been at play. So, we'll start with Threadneedle European Select. Where there the co-manager, Mark Nichols, he left to join Jupiter and another of the analysts left as well. David Dudding remains at the helm. He's been integral to the process, we retained our rating, really we feel that he has been instrumental. The process looks for quality companies, consistent balance sheets, in effect, even slow, sluggish growth, but it's the predictability that's important. So, examples of companies might be for example, Unilever. A long term holding, given the fund is quite long term in terms of low turnover as well that kind of gives us some sort of reinforcement, in our view. So overall, we're pretty happy with the continuation, and that reaffirms our Bronze rating on that fund.

Black: If David Dudding is the one left of that team, does that leave us with some key man risk in that fund now?

Miller: Well, he has promoted someone internally from the small cap teams there. So, it does weigh on our mind. And its part of our our assessment, but given his long standing tenure there, as well as his involvement in the process pretty much since the start, and that's important. He also runs a global fund, which he started to veer towards spending more time on, but now Europe is bit more his focus whilst we kind of get back into the swing of things. They're looking to recruit an extra headcount. So overall, we still got a positive rating was where we concluded.

Black: Okay, fund number two.

Miller: Number two, Fidelity Global Dividends. It's run by Dan Roberts, who joined in 2012. His background was actually more in UK equities. So global was more of a newer venture for him, so to speak. But he's been successful over his tenure. There the process, I mean, Fidelity have got big banks of analysts, it's a bit more him and the research, that's the starting point. So, a bit more key man risk. But still, the process as you might expect, looking for yield still looks for companies that have got attractive valuations. Again, he's looking for predictability, and business models, load that in the companies. So quite stable footing on that fund and reaffirm the Bronze. It's worth noting that it's approaching its capacity. So, there's about $9 billion under management because there's various versions of that funds for different geographies available for different investors. And the capacity we've been talking about has been $10 billion. So, so not far off with that fund, still open for business. And we think its sound management to look at, where you're able to cap the fund in terms of assets to still be able to execute the process without getting too big.

Black: That is interesting. So, at that point, they'll soft close, presumably.

Miller: Soft close, they'll try and do less to attract flows. So, you tend to see the group might not market the fund, the manager might be on the road a bit less. You might even have fees, initial charges come in as a way of controlling it. That's probably a bit more last resort. But ultimately, we think it's quite sound way of approaching things.

Black: And speaking of soft closes, that brings us to our last fund.

Miller: Yeah, so the last fund actually was soft closed and reopened. And that's Robeco Boston Partners US Opportunities Equities Fund. So that strategy is available in multiple jurisdictions for investors in the US, in Europe, in the UK And that fund had got pretty big on the back of the success of it. It's run by Steven Pollack since 2001. So, bit of a veteran in the US equity space. It's more of a mid-cap fund. So, for people who think about the S&P 500 as the bellwether of US equities. It goes a bit more down the lower – bit lower down the market cap structure, with a bit of value bias, and there they're looking to seize on valuation differentials in different sectors, take some momentum, as well as look at the financial health of companies. So actually, it's a bit of quantitative, mixed with fundamental analysis. They've been a bit of underperformers the last couple of years, and that's probably what started to drive some outflows, as well as the difficulty in US equities, passive has taken a stronghold there. And given the extent of the outflows that happened, the group felt comfortable to reopen the fund to investors. So, there'd been sound management in the past. Now there's some capacity that's come about.

Black: But poor performance and then closing a fund is quite timely at the moment it does show you that sometimes it turns out, okay.

Miller: Yeah. So, you can get in to situation where investors are watching performance, flows in terms of new assets goes with it, you might get a soft closure. And then if a fund underperforms a little bit people rush out, it's a classic example of people investing at the wrong time. You know getting in at the wrong time, getting out, maybe a bit too short termist. The funds rebounded and it's P/E group be among the highest performers this year. So, it goes to show the people kind of, maybe getting to the top and then getting out at the wrong time. So still, you need to be long term with your investments.

Black: Well, thanks so much for your time.

Miller: You're welcome.

Black: And 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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Holly Black  is Senior Editor,

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