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Morningstar Manager Check-up

VIDEO: Morningstar analyst Jonathan Miller looks at three funds which have held their Morningstar Analyst rating 

Holly Black 6 November, 2019 | 10:15AM



Holly Black: Welcome to the Morningstar Manager Check-up. I'm Holly Black. With me is Jonathan Miller. He is Head of Manager Research at Morningstar. Hello.

Jonathan Miller: Hi, Holly.

Black: So, we're talking about three funds you've been reviewing today. Where should we start?

Miller: Yes. We've got a few different sorts of funds today. I think we'll start with Asia. So, First State Asian Growth. A couple of managers, lead managers there, Richard Jones and Alistair Thompson, both with pretty much three decades of experience in Asia, plus a team of about 20 analysts there. And we really like the approach the process they stuck to over the long term. So, we reiterated our Silver rating on that fund. And really, what they look for is businesses with discipline in their corporate spending, barriers to entry, strong management, and you see that year in and year out through the portfolios they hold. I think one of the things to mention there in Asia, you think lately about the big tech names, Alibaba, Tencent, this sort of thing, they haven't invested in those sorts of stocks. So, when there's a big growth rally led by tech, this fund will underperform. We know that by the biases. But when those are out of favor, this fund does come into its own. So, it's had a up and down time the last few years, given those stocks were in vogue a few years ago and it was pretty much bottom of the sector this fund, and has come back very sharply since then. So, we like the long-term approach as well. And that's where we reiterate our Silver rating.

Black: It is weird to think of Asia and growth without thinking about Tencent and Alibaba. So, where are their biases?

Miller: Well, China is a bias they have by not holding much of China. Around 30% underweight the index, 30 percentage points less. India is 14 percentage points above the index. So, India as a country is where they're finding some of their preferred ideas.

Black: Okay. What's fund number two?

Miller: Let's go into the fixed income. So, PIMCO GIS Global High Yield Bond Fund. There, Andrew Jessop has been the manager for 10 years there and was already – he came to PIMCO with a good track record in high yield. They've got a very big bank of analysts there at PIMCO, about 50 or so involved. And the fund is actually fairly low risk approach in terms of accessing the market. So, the lowest rating you see of bonds in high yield is CCC. And the category on average has about 9% or 10% invested there. Here, this fund has a handful of percentage points. So, steering away from there, using cash at times when things are a bit choppy, and also kind of steering away from certain sectors where they are seeing high default risks. So, that's panned out well over time in terms of creating good risk-adjusted performance and the fund, we reiterate the Silver rating on that one.

Black: But isn't that kind of a contradiction, people pick a high yield fund because they want the riskier but better yielding stock?

Miller: It's true. So, you've got different brackets within that – within the high yield space. It's just in this case, they just prefer to concentrate a little bit high up the rating spectrum, still within the high yield space, but not all the way through to the CCCs, which are the lowest rated bonds in high yield.

Black: Okay. And our final fund?

Miller: Final fund, Impax Environmental Markets. This is Ireland domiciled. There's also an investment trust, but we're focusing on the open-ended fund for this. So, it's quite a specialist in terms of environmental and it's good that there's some managers there with probably 20 years' experience or so in that niche space. And Bruce Jenkyn-Jones and Jon Forster. They've got a team around them as well. And this fund invests in areas like water, waste, agriculture, forestry, so niche, as I said, but tapping into that environmental space. We also like the fact that as well as the bottom-up they look at the top-down. So, what's happening with regulation in different parts of the world because that can have an impact on areas that might have a good fit or even be hindered somewhat. And the returns over the long term have been strong.

It's worth noting though, that given the niche element of what you have here, you tend to see portfolios in this space that are small cap in nature, small or mid cap, and have a growth element. So, whilst you might like that sustainable feature, it's important to note the risks around the type of stocks and market cap exposure you're holding there.

Black: Yeah, this does seem like an area that lends itself better to an investment trust rather than an open-ended fund.

Miller: It can do if you're going more down the illiquid roots, if you want to go more through early cycle companies that are maybe at the forefront of some new technology or changes. So, it depends where some stocks might be listed in terms of unquoted or quoted. But still, in the open-ended structure, we've got confidence that this team and the house which has been focused on environmental market since its founding really has got a good specialist focus and we reiterate the Bronze rating there.

Black: Well, thank you so much for your time.

Miller: Pleasure.

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.

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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