Upgrades
Franklin UK Equity Income – Gold from Silver
Samuel Meakin
Franklin UK Equity Income’s manager offers a wealth of experience in equity-income investing. Colin Morton has successfully managed this strategy since January 1995, providing exceptional consistency and stability for investors that is rarely seen in the UK market. Morton's philosophy and process sit well with equity-income investing. He blends top-down analysis of the economy and stock market dynamics with a valuation-aware approach to stock selection, executed consistently over time. Under our enhanced ratings framework, which places a greater emphasis on fees and expected benchmark-relative performance, the Morningstar Analyst Rating for the clean W share class is upgraded to Gold from Silver. Other share classes range from Gold to Silver, dependent on cost.
Downgrades
SPS Boston Partners Global Long/Short – Neutral from Bronze
Francesco Paganelli
SPS Boston Partners Global Long/Short lacks a holistic portfolio construction process and has stumbled in the execution of its short positions. A lack of personnel with shorting expertise also holds it back, resulting in a downgrade of the Process and People Pillar ratings to Average. Under our enhanced ratings framework, which places a greater focus on fees, the Morningstar Analyst Rating of the fund is therefore downgraded to Neutral for the fund’s cheaper share class and Negative for the full-freight retail share class.
Invesco S&P 500 High Dividend LowVol (HDLV) – Neutral from Bronze
Briegel Leitao
Invesco S&P 500 High Dividend Low Volatility ETF targets high-dividend-yielding stocks in the S&P 500 and attempts to keep volatility in check by filtering out some of the risker names from this group and capping exposure to individual stocks. In doing so, however, it takes large sector bets, and this ultimately creates another source of risk that outweighs much of the cost advantage of the fund, warranting a Morningstar Analyst Rating of Neutral.
iShares Global Inflation Linked Government Bond ETF – Bronze from Silver
Jose Garcia Zarate
Investors seeking broad exposure to the global market of inflation-linked government bonds issued by developed countries will be well served by this iShares ETF. The index provides a comprehensive representation of what is a relatively small, albeit liquid, bond market. The fund is efficiently managed. Its ongoing charge is competitive relative to the category average, but there are cheaper passive options on offer. Given the focus or our ratings framework on net return generation, where fees play a key role, the Analyst Rating for this strategy is downgraded from Silver to Bronze.
Schroder ISF European Special Situations – Bronze from Silver
Lena Tsymbaluk
Schroder ISF European Special Situations has some compelling features, including a stable and experienced management team and a differentiated approach with a genuinely long-term outlook. The caveat is its expenses. There is a performance fee of 15% on returns above the MSCI Europe Index, subject to a high-water mark. While a performance fee can help align the interests of the fund manager and investors, combining it with a lower base ongoing charge is a good starting point, which isn't the case here. Under our enhanced ratings methodology, which places a greater focus on fees and benchmark-relative performance, the C Acc EUR clean share class changes to Bronze from Silver. Other share classes range from Bronze to Neutral, dependent on fees.
Note: Under Morningstar's ratings methodology, different share classes of a fund may have a different rating
