Morningstar Fund Ratings: Weekly Round-up

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

Mathieu Caquineau, CFA 19 October, 2021 | 10:29AM
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New Ratings

DWS ESG Dynamic Opportunities FC & DWS Invest ESG Dynamic Opportunities FC – Bronze

Thomas De Fauw

Investors in DWS ESG Dynamic Opportunities benefit from a strong portfolio management team and a proven approach. Lead manager Christoph Schmidt has been at the helm of this strategy since 2013 and has proved a skillful stock picker. We draw additional comfort from the high level of experience and collaboration within the team of seven portfolio managers and two risk managers. The strategy is unconstrained, but risk management sets clear limits, which allows the team to focus on generating good investment ideas. Volatility has ranged between 60% and 75% of that of the MSCI World Index since 2015, with a limit of 100%. The team aims to add value mainly through top-down allocation and identifying investment themes. From 2017 onwards, Schmidt has added more growth names to the portfolio, moving away from the team’s traditional European and value tilts. Also, since March 2021 the fund is fully compliant with DWS’ ESG standards. Schmidt has outperformed the EU aggressive globalallocation Morningstar Category average as well as the Morningstar EU Aggressive Target Allocation Index between February 2013 and end-August 2021, both in terms of raw and risk-adjusted returns (as measured by Sharpe ratio), despite a generally lower allocation to equities of between 60% and 90%. We initiate coverage with a Morningstar Analyst Rating of Silver for its cheaper share classes, while more-expensive share classes are rated Bronze and Neutral.

Eastspring Investments Asian Equity Income – Neutral

Samuel Lo, CFA

Eastspring Asian Equity Income is managed by Pearly Yap, who took over the strategy in March 2020. She has 26 years of experience, and while she has been involved here since she joined the firm in 2011, her track record as the strategy’s lead manager is short. She leads the four-member Equity Income and Property focus team that directly supports this strategy and can also leverage the broader 15-member Core Equities desk, although the way that the team is organized creates some resourcing inefficiencies, in our opinion. This regional income strategy shifted from a more value-leaning, dividend focus to a core investment style in July 2020, and while it maintains the existing above-market dividend yield target, it extended the flexibility to invest in non-dividend-paying names. A number of growth-oriented, lowdividend-paying names have since been bought, resulting in a marked decline in the portfolio’s overall dividend yield and considerable changes to the portfolio’s makeup. Yap and her team’s investment capability beyond traditional dividend investing is relatively untested, and we have reservations around the paucity of guardrails as to how Yap manages the nondividend portion of the portfolio. We initiate coverage on the strategy with both People and Process ratings at Average, resulting in a Morningstar Analyst Rating of Neutral across all share classes.

Downgrades

Metropole Selection W – Neutral from Bronze

Mathieu Caquineau, CFA

Metropole Gestion is to be fully acquired by ODDO BHF by the end of 2021, pending regulatory approval. While the team and process behind this strategy will remain unchanged for now, the long-term direction is less certain, particularly the ability to keep key people on board and maintain the investment-centric culture that has distinguished Metropole Gestion since its foundation in 2002. Isabel Levy, one of Metropole Gestion's co-founders and head of the investment team, is set to retire in 2023. A succession plan has long been in place, with Ingrid Trawinski and Cédric Hereng promoted co-heads of the team in 2012 and 2018, respectively. That transition plan originally entailed a gradual transmission of the firm’s ownership to the remaining employees. With this option now off the table, the team’s long-term incentives to stay on board are less clear. Also, the firms’ respective cultures may prove difficult to integrate. With a Parent rating downgrade to Average from Above Average and the People and Process ratings reinstated at Above Average and Average, respectively, all the fund’s share classes receive a Morningstar Analyst Rating of Neutral. The clean share class W was previously rated Bronze.

TM CRUX European Special Situations I Acc GBP – Silver from Gold

Samuel Meakin, CFA TM CRUX European Special Situations benefits from the experience and proven ability of Richard Pease and is implemented via an established approach. While our ratings of the People and Process Pillars are unchanged, the GBP I share class now receives a Morningstar Analyst Rating of Silver, a downgrade from Gold, reflecting the increasingly competitive asset management landscape and peer group.

Rerated from Under Review

Artemis Monthly Distribution I – Bronze from Under Review

Jonathan Miller

Following the retirement of long-standing manager James Foster, the fixed-income sleeve of Artemis Monthly Distribution will be managed by Stephen Baines. Baines sits in a separate in-house fixedincome team of six people that will consider a wider investment universe for this strategy than in the past. Jacob de Tusch-Lec will continue to run the equities portion, which he has done since launch in May 2012. There is some continuity here, despite the change on the fixed-income side, and we believe that the implementation of investment ideas in a synchronized fashion can continue. The clean share class moves to a Morningstar Analyst Rating of Bronze (previously Silver), in recognition that there is a new dynamic. More expensive share classes are rated Neutral.

 

 

  • 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

Mathieu Caquineau, CFA

Mathieu Caquineau, CFA  Senior Fund Analyst, Morningstar France