Upgrades
Franklin Mutual Global Discovery - Silver from Bronze
Ronald Van Genderen
This strategy underperformed most peers in the global large-cap value equity Morningstar Category and the MSCI ACWI Value category benchmark, but Franklin Mutual Global Discovery should do well when value bounces back as it boasts a veteran team and distinctive process. However, we maintain our conviction in lead portfolio manager Peter Langerman, who has been managing this strategy since December 2009, and the experienced 21-person Mutual Series team. The long-standing approach concentrates on firms' enterprise values, what each business line is worth, and potential catalysts. The strategy will own merger-arbitrage plays, which help the team keep tabs on what informed buyers are willing to pay and thus confers an advantage over other value-minded rivals. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the Morningstar Analyst Rating for cheaper share classes is upgraded to Silver from Bronze. The ratings for more expensive share classes range from Bronze to Neutral.
Downgrades
Axa Aedificandi - Neutral from Silver
Ronald Van Genderen
This strategy still benefits from several characteristics that we appreciate. The stable four-member team is led by the experienced Frédéric Tempel. He has built a strong expertise in European real estate equity that few can match in Europe. His team members are experienced as well and the availability of supporting resources within the firm is another plus. They apply a proven process and execution has been clever and consistent. Nevertheless, under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the Morningstar Analyst Rating for the more expensive retail share classes is downgraded to Neutral from Silver. Only the cheapest share class retains a Silver rating.
Legg Mason CB US Aggressive Growth - Bronze from Silver
Lena Tsymbaluk
Legg Mason CB US Aggressive Growth continues to benefit from seasoned managers and differentiated & long-term oriented process that should allow it to outperform in the long run. 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 X share class has been downgraded to Bronze from Silver. Cheaper share classes still earn a Silver rating, while more expensive share classes earn a Neutral rating.
Fondita Nordic Micro Cap - Neutral from Bronze
Matias Mottola
We have downgraded the Morningstar Analyst Rating of the Fondita Nordic Micro Cap fund from Bronze to Neutral for all share classes. The fund continues to have an experienced and strong team in Markus Larsson and Kenneth Blomqvist who have been at the fund since 2006 and 2011, respectively. However, the fund’s investment process has revealed weaknesses over the past six years during which the fund has seen its stock-picking results degrade. Several of the fund’s high conviction picks have turned out to be disappointments, and the investment process has not led the managers to successful micro caps to balance out these losses.
H2O Allegro - Negative from Neutral
Matias Mottola
We have downgraded the Morningstar Analyst Rating of all share classes for the H2O Allegro fund from Neutral to Negative. Evidence of poor stewardship and rampant risk-taking at the global macro boutique H2O Asset Management, which is majority-owned by Natixis, has continued to mount even after concerns around illiquid corporate bonds at the company’s funds arose in mid-2019. The fund’s bold macro bets have led to extreme losses in the market turbulence of March 2020 and were not adequately reined in by formal risk controls in our opinion.
SPDR S&P 500 ETF - Silver from Gold
Briegel Leitao
SPDR S&P 500 ETF is expected to continue to outperform its Morningstar Category peers over the long term, with passive investment approaches such as the one offered with this strategy becoming the standard for investors looking to gain exposure to large-cap US equities. The parent index, the S&P 500, offers giant- to mid-cap exposure and consists of 500 names, covering about 80% of the free-float adjusted market capitalisation of the US equity market. This results in a well-diversified index, at both the stock and sector level. The fund is priced attractively versus active peers who typically charge between 0.70% and 1.20%. However, while the fund is also priced competitively versus many passive peers, cheaper alternatives still exist, with offers as low as 0.06%. For this reason, and according to our new enhanced methodology, which places a greater emphasis on fees, the fund has been downgraded to a Morningstar Analyst Rating of Silver.
NB. Under the Morningstar Analyst Rating methodology different shares classes of a fund may have a different rating
