Morningstar Fund Ratings: The Weekly Round-up

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

Patrick Ge 5 April, 2022 | 8:53AM
Facebook Twitter LinkedIn

morningstar rating

New Ratings

BGF Asian High Yield D2 USD – Neutral

Patrick Ge, CFA

BGF Asian High Yield Bond’s impending lead manager departure and risk management concerns lead to some uncertainties regarding its prospects. Artur Piasecki, one of the team’s most senior investors, will leave the firm and step down from his lead manager responsibilities of the strategy effective 31 March 2022. As a key contributor here since its 2017 inception, his exit will be a loss. Co-manager Suanjin Tan will replace him come 1 April 2022. While experienced, we need time to gain confidence in Tan as the key decision maker, who does not have a public track record managing an Asian high yield bond fund. The strategy employs a high-conviction, benchmark agnostic investment process that marries top-down macro insights with bottom-up fundamental credit analysis. This approach has resulted in concentrated risk exposures, and while it has added value in the past, it also led to severe losses in 2021 owing to the team’s oversized bet on Chinese property developers, which points to potential risk management issues. Capacity management is another area to monitor. Given these reservations, the strategy earns People and Process pillar ratings of Average, resulting in a Morningstar Analyst Rating of Neutral across all share classes.

Man AHL TargetRisk I USD – Silver

Thomas de Fauw

A topnotch team executes a thoughtful, risk-controlled approach to risk parity investing on Man AHL TargetRisk fund. Our strong conviction in the team and investment process result in a Morningstar Analyst Rating of Gold for the fund’s cheapest share classes and Silver for the I USD share class. Other share classes are rated Silver to Neutral. Man AHL has a proven 35-year track record of successfully managing quantitative strategies like this one. A trio of portfolio managers – led by CIO Russell Korgaonkar – synthesise that research into the strategy and support a People Pillar rating of High. This highly tactical strategy differentiates itself from risk parity peers with its liberal use of thoughtfully applied leverage and an ability to quickly shift its market exposure down and up to 350%. The team is comfortable with that leverage given a robust set of risk controls that will drastically cut that exposure during selloffs. Sidestepping selloffs like the one in 2020 have contributed to an excellent track record for this strategy. It earns an Above Average Process rating.

Re-Rated From Under Review

Mathieu Caquineau, CFA

AXA Europe Small Cap – Neutral From Under Review

AXAWF Framlington Europe Small Cap F – Neutral From Under Review

Morningstar has downgraded the Analyst Rating for AXA Europe Small Cap's clean F share class to Neutral from Bronze. The fund had been Under Review following the announcement that lead manager Isabelle de Gavoty was leaving the firm. De Gavoty had successfully led this fund and AXA Investment Managers' small-cap team since 2008. Her departure is a major loss for investors. Caroline Moleux and Françoise Cespedes will jointly run the fund going forward, with Moleux also becoming head of the small-cap unit. Moleux joined this team in 2014 and has been a comanager on this strategy since 2016. Cespedes joined the firm in 2021. She has 25 years of experience and managed several funds in the past at Aviva Investors and ABN Amro but has no individual track record purely dedicated to European small- and mid-cap stocks.

While the duo brings relevant experience to the table, we have incomplete evidence of their expertise at this stage. The investment process should remain the same under the new management. De Gavoty's expertise and market knowledge was key in using this process effectively, and we have yet to see how well the process will be applied by her successors. However, it is encouraging that the fund's past outperformance originated from stock selection in different sectors, outlining the contribution of the rest of the team from an idea and research standpoint. But for now, the strategy has lost its appeal.

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.

Facebook Twitter LinkedIn

About Author

Patrick Ge  is an Analyst on the Morningstar Manager Research team