New Ratings
MFS Meridian Prudent Capital - Silver
Francesco Paganelli
We have initiated coverage of MFS Meridian Prudent Capital with a Morningstar Analyst Rating of Silver for the fund’s cheapest share classes, with more expensive classes landing at Neutral and Bronze. The fund’s W1 clean share class earns a Silver rating. The strategy is run by a strong trio of portfolio managers, led by veteran investor Barnaby Wiener, with access to a vast research platform. The fund’s robust investment process plays to the group’s strengths and adds to its appeal.
Veritas Global Real Return - Gold
Francesco Paganelli
We have initiated coverage of Veritas Global Real Return with a Morningstar Analyst Rating of Gold for its cheapest share classes, while more-expensive share classes earn Silver ratings. A dedicated and skilled team of managers and analysts apply a disciplined, distinctive, and replicable process that has worked well for many years. In our view, the fund represents a superior option for investors seeking a time-tested global long-short strategy.
Upgrades
Franklin Global Real Estate - Neutral from Negative
Ronald Van Genderen
In September 2019, Franklin Templeton decided to transition the management of this strategy from Franklin Real Asset Advisors to the Franklin Equity Group. This triggered changes to both the team and the process. Previous lead manager Wilson Magee retired, and three out of five members from the team previously running this strategy were let go by the firm. Daniel Scher stayed at the helm and was joined by Blair Schmicker as comanager.
We think this strategy is now in the hands of two solid managers, but Schmicker is less experienced in the global real estate market and the duo has limited research support. The new management duo has overhauled the process. The new approach is based on a core-plus strategy. The core will be formed by best-in-class companies within each major subsector of the global property market. The core will take up to around 90% of the portfolio, with the remainder of the portfolio invested in special opportunities. We believe the new setup addresses some of the weaknesses of the previous approach, but we need to see how the new managers shape the portfolio. The clean W(acc) USD share class and all similarly or cheaper share classes receive a Morningstar Analyst Rating of Neutral, which is an upgrade versus the previous Negative rating. All of the more expensive share classes are still rated Negative.
iShares MSCI Japan ETF - Bronze from Neutral
Kenneth Lamont
The index tracked by this fund made changes on 27 November 2019 that have reduced its sizable structural sector bets versus category peers. The fund now more closely resembles its parent MSCI Japan index, a development that we view favourably. For these reasons, we have upgraded this fund to a Morningstar Analyst Rating of Bronze from Neutral.
The fund tracks the MSCI Japan SRI Select Reduced Fossil Fuel Index. The strategy provides approximate exposure to the top quartile of Japanese companies ranked on environmental, social, and governance criteria. In addition to picking the most compliant stocks by sector, it also applies several hard screens, excluding firms based on their carbon-risk profile and on other values-based issues like controversial weapons and tobacco. A 5% issuer cap is also in place to limit individual stock concentration and improve diversification. The fund has an ongoing charge of 0.30%, making it much cheaper than active peers in the Japan large-cap equity Morningstar Category, although cheaper passive options--both ESG-screened and -unscreened variants--are available. The low fee has helped the fund outperform category peers on a risk-adjusted basis since its inception in 2017, but the fund lacks a live track record following its recent strategy change.
SPDR S&P Euro Dividend Aristocrats ETF - Silver from Bronze
Dimitar Boyadzhiev
The SPDR Euro Dividend Aristocrats exchange-traded fund tracks 40 dividend stocks picked from within the eurozone. The fund adopts a dividend growth, rather than dividend yield, strategy. To be considered for inclusion, each holding must have maintained or raised annual dividend payments for at least 10 years. In addition to its dividend growth screen, the strategy also weeds out firms with weaker fundamentals that might cut or reduce their dividends. This solid approach combined with a low management fee supports a Morningstar Analyst Rating of Silver.
Downgrades
Pictet-Global Megatrend Selection - Neutral from Bronze
Ronald Van Genderen
This multistrategy fund offers investors broad exposure to Pictet’s well-managed thematic strategies. We think the unified process of these underlying strategies is well-structured and repeatable and the overall team is extensive. However, team changes that took place in 2018 still limit our conviction. Under our new ratings framework, which places a greater focus on fees and benchmark-relative performance expectations, the Morningstar Analyst Rating for the fund’s clean share class (I EUR) is lowered to Neutral from Bronze. Cheaper share classes are rated Bronze, while all other share classes are rated Neutral.
Templeton Emerging Markets Smaller Companies - Neutral from Bronze
Andrew Daniels
Templeton Emerging Markets Smaller Companies benefits from a solid and proven management team. Under our enhanced ratings framework, which places a greater emphasis on fees and benchmarkrelative performance, the vehicle’s cheapest share classes earn Morningstar Analyst Ratings of Bronze, while the more expensive share classes -including the W(acc)USD clean share class - fall to Neutral.
