Morningstar Manager Check-up

VIDEO: Morningstar's Jon Miller looks at three funds whose ratings have recently been reviewed, including a Gold-rated US fund

Holly Black 24 August, 2020 | 11:24AM
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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, you've got your roundup of three funds whose ratings you've been reviewing. Where would you like to start?

Miller: I'd start with the US, so the Morgan Stanley US Advantage Fund. This is a fund that's classified in the growth sector. It's looking for growth companies. So, that means it's been in an area that's been well followed in the market. That area of the market has got quite high-tech holdings, for example. There's something a bit different about this strategy. What we like – the manager, Dennis Lynch, he's been there over 20 years. He is supported by a stable team, low turnover within that team, and they've been adding headcount. And what the process looks for is whilst it's looking at disruption, within that it's still looking at brands that have scale and network effects and high competitive advantages. They do a lot of work on that side to create around a 40-stock portfolio. What we've seen with the results is that actually it's more resilient on the downside given that kind of strength, the firm, they're looking for and this year with the kind of companies in the portfolio it's rallied smartly, up more than 40% in sterling terms over the year-to-date.

Black: In these markets like the US that are so hard for active managers to outperform in, is it something differentiated in the strategy that you are looking for?

Miller: Definitely. When it comes to the people and the process, which are the key areas we look for, the parent company comes into play as well, we're really looking at the quality of work that goes into but also you can't just follow the benchmark. And here, we think that in different market environments the manager has proved his worth. What they say they look for and how it's executed has been consistent. It's returned about 2% more annualized than the Russell 1000 Growth Index over the long term. So, we think there's a lot to like in this instance.

Black: Okay. Let's go to fund number two.

Miller: Sure. Nearer to home in continental Europe, so the Jupiter European Fund. This might be well-known to our viewers and readers. It was managed by Alex Darwall who was one of the biggest franchises at Jupiter and he left. The new managers came in in October 2019. We took the fund to Neutral at that point. We thought that was the right thing to do. Having spent a bit more time with them that fund has been now upgraded to a Morningstar Analyst Rating of Bronze. So, the management duo came in from Threadneedle and there one of the managers was running – co-running a fund that was looking at something a bit similar in terms of quality growth that was here before, so competitive advantages, a firm's high return on equity and we see that through the portfolio that's been created today. So, we quite like the trajectory that this fund is on and that warranted the upgrade.

Black: Okay. And what's our final fund?

Miller: A different way to play Europe, this time through smaller companies. It's a Pan-European smaller companies offering. So, it's got some UK exposure too. And that's from Montanaro – so the Montanaro European Smaller Companies Fund. Again, a bit of a quality growth resonates through this. And here, what we like is the process and the team. There's a team of 10-plus analysts, very bottom-up focused looking for stock specifics and they go and kick the tires of visiting companies, learning what's going on in-house, really seeing things first-hand, seeing different parts of the supply chain to really get a 360-degree view of the business. They engage with management. They look at the social impact of what goes on around the firm and they think this helps create positive aspects around businesses and that's been embedded within the process for 15 years or so. The manager is called George Cooke. He's been running that for about a couple of years now nearly. But the more well-known founder of the business, Charles Montanaro, sits as a co-manager here. He's involved in the investment committee where decisions are made on what in fact stocks that go into more broader buy list across the group and then the fund managers pick those. The rest of the sort of team approach that goes into it, but the managers are building the portfolios. So, we think there's some positives here and that retains its Morningstar Analyst Rating of Bronze.

Black: Jon, fantastic. 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.

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Holly Black  is Senior Editor,