What's on the Morningstar Prospects List?

VIDEO: The Morningstar Prospects list covers promising funds, which don't yet have a Morningstar Analyst Rating but may be worth a closer look. Here are some of the latest entrants

Holly Black 10 August, 2021 | 12:14PM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Jeffrey Schumacher. He's from the manager research team at Morningstar.


Jeffrey Schumacher: Hi, Holly. Good afternoon.

Black: So Jeffrey, we talk about the prospects list at Morningstar a couple of times a year. And you're back with the latest one today. But for the uninitiated or the forgetful, do you want to remind us what this report is all about?

Schumacher: Sure. So the Morningstar prospect list is a semi-annual listing of promising actively managed strategies that we believe are worth greater investor attention, but that are not yet covered by Morningstar's manager research team. So our Europe and Asia based analysts cover approximately 1,200 actively and passively managed strategies, and those all carry Morningstar analyst ratings. But in addition to that, we are constantly monitoring the wider funds universe in order to identify strategies that we think have potential, that we think are interesting, and which we ultimately may consider for coverage. So over the past six months, we have spoken to about 50 portfolio managers of strategies that we currently do not cover. And actually, some of them have made it into the most recent edition of the prospect list.

Black: So how many have actually made the list this time round?

Schumacher: Yeah, so in this ninth edition of the prospect list, we present 40 strategies that we think have merit, and are worth investors consideration. So since our last edition, we have removed 9 funds from the list, having closely monitored the strategies, we arrived at the conclusion that some of them didn't have enough merit to be considered for full coverage. Whereas for some other strategies an event like a manager departure, team turnover, insufficient asset growth, or liquidation were all reasons to not consider them for coverage. Nonetheless, we have also been able to select four strategies that graduated to full coverage, and actually all of them are carrying a (medalist) rating.

Black: Okay, and two of those were from the Liontrust Sustainable Future range. Do you want to give us a bit more detail on those funds?

Schumacher: Yes, absolutely. So these strategies benefit from an integrated process, with long standing roots in sustainable investing and also benefit from a very consistent implementation. So the funds are managed by a well-resourced and experienced sustainable investing team that is headed by the well-regarded Peter Michaelis. So, we initiated coverage on Liontrust Sustainable Future European growth with a Morningstar analyst rating of Silver for all its share classes, whereas Liontrust Sustainable Future Pan-European Growth has received Bronze ratings for all its share classes.

Black: So, they've graduated from the prospects list, but let's now talk about some of the ones that have been recently added to the prospects list.

Schumacher: Yeah, so over the past six months, we have added 11 strategies to the prospect list and if you take a look at those, you will see that several of them have actually a sustainability angle, such as Baillie Gifford's Worldwide Global Stewardship Fund, BMO Responsible Global Equity Funds and also Regnan Global Equity Impact Solutions. While the latter one is managed by Tim Crockford who was previously at Federated Hermes, before he joined Regnan in October 2020. So he has introduced here at Regnan the same distinctive approach that he developed himself at Federated Hermes which he applied successfully at Federated Hermes Impact Opportunities Equity while the track record here at Regnan, of course, is still relatively short, but the strategy has achieved very strong results at Federated Hermes before.

Black: Okay, and just finally, can you remind us how a fund graduates from the prospects list to getting a full analyst rating? What does that take?

Schumacher: Yeah, so there are several factors that actually play a role in that decision, like client demand, for example, but also the quality of coverage that we have in a particular category. But above all, I would say that it's really the analyst conviction, that is a key factor in making that decision. So the analyst must be convinced of a strategy's ability to generate a positive offer, after fees over a full cycle versus its benchmark. So that means that the analyst must be convinced of the investment team that is running the strategy, but also of the soundness and robustness of the investment process that's being applied. And we really try to gain that conviction over the various meetings that we have with portfolio managers before considering them for graduation and ultimately full coverage.

Black: Jeffrey, 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, Morningstar.co.uk


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