Morningstar Manager Check-up

VIDEO: Morningstar's Jon Miller reveals how analysts are still meeting fund managers in lockdown, and talks through some of the latest fund rating changes

Holly Black 17 June, 2020 | 11:11AM

 

 

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

Jonathan Miller: Hi, Holly.

Black: So, it's been a while since we've done one of these where we have a little check in of some of the funds you've been reviewing your ratings on. But I'm interested to find out how you are actually doing that and doing your manager meetings in the current situation.

Miller: Well, you're right. So much has gone on in the last couple of months, but I do have to say with the privileged access, we do have to meet fund managers face to face, has continued, whether it'd be in the depths of the sell-off in March, we were still able to meet the fund managers, they still had time for us. And as always, when we talk through the funds that we explain in these videos and the options and positive ratings that we have, it's the long term that counts and I think that's one of the messages we've been giving in the last few months. So, we need to caveat that as well with the ideas that we're going to talk about.

Black: Okay. Well, what is our first fund while we are at it?

Miller: So, we'll start with Fidelity Emerging Asia. This retains its Silver rating. It's been managed by a portfolio manager called DJ Phadnis for a number of years now. Emerging Asia in this sense means the fund has clear holdings in places like China, Hong Kong, Taiwan and Korea. And what he does is he's got access to the 50 analyst bank at Fidelity, so a lot of resource there to look into. But really, what he articulates in terms of the companies that he invests in, what he looks for and how that's executed in the portfolio, we think very highly of that. Ultimately, what he is looking for is quality management, economic moat, so stability around the business itself and valuation. And we feel the results have been strong. It's priced competitively and all that comes together to have quite a high conviction in the Silver rating there.

Black: Okay. And what's fund number two?

Miller: So, number two, we'll go for an investment trust. So, very popular one for actually the followers of investment trusts out there, that's City of London. It's gone up to a Gold, so our top rating, and it was Silver before. The manager Job Curtis has been there since 1991. And really, we think it's a competitive UK equity income option. So, you've got the closed-ended structure which helps and Curtis is looking for balance sheet strength, cash generation, the ability to pay dividends…

Black: And I think the dividend really is the key point there. This is a trust we would call a dividend hero because it's grown its payout more than 50 years in a row and that's only going to be more appealing in this environment I would imagine.

Miller: Yeah, that's right. The year-on-year growth in dividends is hugely impressive and it comes back to what I mentioned about the investment trust structure which does give it better optionality in how you can use that with the reserves. In the upcoming environment there's those revenues it can be tapped into to help support that dividend.

Black: Okay. Final fund?

Miller: So, finally, T. Rowe Price Global Growth, and here we maintain the Silver rating. So, it's a bit different in terms of the global funds intensity. So, especially the growth side here, the manager Scott Berg who's been running the strategy since 2008. Again, cash generation, the ability to grow rapidly is part of the thesis. But what's different here is you've got about 160-170 stocks whereas most global growth funds would have really 30-40 focused picks that can really help aggressively in terms of the focused portfolio. Here, the fund has still been able to outperform. It's been different in another way that it's got about more than 20% in emerging markets and the index is more like 10%. So, you've got India and parts of Southeast Asia heavily represented. What we like at T. Rowe Price is a very strong analyst bank. Here there's well over 150 global analysts. So, you might think, well, that's too much for the manager to tap into. But he uses more of the sector fund managers and regional fund managers to help in terms of the ideas that can come into this portfolio. Also, the analysts at T. Rowe Price are well remunerated in terms of how their stock picks perform over the long-term. So, we think it fits together with long-term thinking from the analyst bank, a process that's a bit different but a manager that's proved that he can execute it all come together to help we able to Silver rate it again.

Black: Jon, thank you so much for your time. For Morningstar, I'm Holly Black.

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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