Morningstar Fund Ratings: Weekly Round-up

In this week's ratings round-up, we unveil the latest upgrades and downgrades from Morningstar analysts 

Shannon Kirwin 14 September, 2021 | 12:04AM
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New Ratings

Eastspring Investments US High Investment Grade Bond - Neutral

Shannon Kirwin

We have initiated coverage of Eastspring Investments US High Investment Grade Bond with a Neutral rating for all of the strategy’s share classes. The strategy’s longtime manager, Calvin Walker, boasts many years’ experience in the investment-grade credit market and is backed by a deep and remarkably stable analyst team. However, the mandate’s restrictions, which largely confine it to the AAA, AA and A rated segments of the USD corporate bond universe, dampen its appeal. While the manager has consistently outperformed his custom benchmark, his scope for alpha generation is dwarfed by the strategy’s fees. The strategy therefore receives an Above Average People score and an Average Process score. 

Eastspring Investments US Investment Grade Bond R - Neutral

Shannon Kirwin

Morningstar has initiated coverage of Eastspring Investments US Investment Grade Bond with a rating of Bronze for the strategy’s institutional C share class and Neutral for its remaining share classes, including its clean share class R. The fund benefits from a long-tenured and experienced manager in Mark Redfearn, as well as a deep and remarkably stable analyst team. The mandate, which is limited to the A and BBB rated segments of the USD investment grade bond universe, does not overly limit the manager’s capacity to generate outperformance. The manager has demonstrated his ability to deliver alpha through bottom-up security selection without courting concentrated sector or single name risk. The strategy receives People and Process scores of Above Average.

Downgrades

Comgest Growth Emerging Markets Z - Neutral from Silver

Mathieu Caquineau, CFA

Comgest Growth Emerging Markets is entering a new era with a revamped management team officially taking over on October 1 2021. The new trio of managers has a lot to prove amid a stretch of particularly poor performance. Some positive features remain though, such as the consistency and discipline of the strategy's quality-growth approach, the intensity of the research backing the stock selection, the overall resources of the emerging-markets team, and the firm's strong investment culture. But the unknowns are substantial. Our conviction at the team level has decreased, and we have lowered its People Pillar rating to Average from Above Average. The uncertainties on how the new managers will execute this long-standing quality-growth approach are reflected in a downgrade of the Process Pillar rating to Above Average from High. As a result, Morningstar Analyst Rating for the strategy's clean share class Z drops to Neutral from Silver.

FTF Templeton Global Total Return Bond Z – Neutral from Silver 

Templeton Global Bond Z(acc) USD – Neutral from Silver 

Templeton Global Total Return Z(acc) USD – Neutral from Silver 

Patrick Ge, CFA

We have lowered the Process Pillar rating to Average from Above Average and the People Pillar Rating to Above Average from High for Templeton Global Bond, Templeton Global Total Return, and FTF Templeton Global Total Return Bond. As a result, the strategies’ Morningstar Analyst Ratings for their Z clean share classes were lowered to Neutral from Silver, while other share classes range from Negative to Bronze. The experience of lead manager Michael Hasenstab, who makes the final calls for the firm’s Global Macro suite of funds, comanager Calvin Ho, and the core analyst squad is extensive. However, the recent retirement of the team’s head trader and shifts in the workload and structure of the quantitative and construction teams calls for caution. Regarding the investment process, the strategy’s level and complexity of risk-taking in recent years has overwhelmed its solid country and currency research. Missteps in these areas, including the now-removed U.S. Treasury short, a heavy focus on highly-volatile Latin American debt, and long Japanese yen exposure have stung. All in all, the strategy has been known to make up ground in a hurry, but its extreme volatility paired with the specter of persistent outflows raise the portfolio’s risk of liquidity trouble, preventing us from recommending it.

Rerated from Under Review

Fidelity Emerging Asia – Neutral from Under Review

Claire Liang, CFA

Madeleine Kuang took over Fidelity Emerging Asia from Teera Chanpongsang on July 1 2021. Chanpongsang is an Asian equity veteran who has 27 years of experience and had managed this strategy for over a decade with commendable results. His expertise will be missed on this strategy. Kuang brings 19 years of experience. She joined Fidelity in 2010 and was an analyst covering the ASEAN markets before being promoted to lead the Fidelity ASEAN franchise in June 2018, which she has steered with some success. While we appreciate her expertise in ASEAN equities, she has yet to build a track record in the China and India markets, which account for two thirds of the strategy's investable universe. Like her predecessor, Kuang adopts a bottom-up investment approach but brings her own stock classification framework. This is the same investment philosophy employed by her ASEAN franchise, though its efficacy is untested in this broader Asian ex-Japan mandate, and we have some reservations about its fluid application. As such, we downgrade both the People and Process ratings to Average from Above Average. This leads to a Morningstar Analyst Rating of Neutral for all the strategy's share classes. The strategy had previously been placed under review.

  • As part of Morningstar's enhanced methodology for Analyst Ratings, different share classes have different Ratings

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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About Author

Shannon Kirwin  is a fund analyst with Morningstar

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