Morningstar Fund Ratings: The Weekly Update

We're back with another roster of upgrades and downgrades, and news of one fund that we re-rated after a period of keeping it under review

Hunter Beaudoin 3 May, 2022 | 11:57AM
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Upgrades

JPM Multi-Asset Income C Net ACC – Silver From Neutral

Hunter Beaudoin

UK-domiciled JPM Multi-Asset Income is backed by an experienced portfolio management team that leverages an ever-evolving number of underlying sleeves to invest across asset classes and markets. Supported by Eric Bernbaum, Michael Schoenhaut is a tenured and collaborative manager who has remained at this strategy’s helm since its inception. Along with the multi-asset solutions manager research team, he takes a first-hand role in vetting and approving the addition of portfolio managers to the strategy’s underlying asset class sleeves. Stabilised sleeve manager turnover and continued conviction in Schoenhaut and Bernbaum underpin an upgrade of the People rating to Above Average from Average. The strategy’s comprehensive and well-structured tactical asset allocation process remains intact and continues to support a Process rating of Above Average. This results in an upgrade of the Morningstar Analyst Rating to Silver or Bronze from Neutral for the cheaper share classes. The clean C Net Acc share class is upgraded to Silver from Neutral. More-expensive share classes retain their Neutral rating.

JPM Multi Income (mth) - USD – Bronze From Neutral

Hunter Beaudoin

Hong Kong-domiciled JPMorgan Multi Income is backed by an experienced portfolio management team that leverages an ever-evolving number of underlying sleeves to invest across asset classes and markets. Michael Schoenhaut, supported by Eric Bernbaum and Leon Goldfeld, is a tenured and collaborative manager who has remained at this strategy’s helm since its inception. Along with the multi-asset solutions manager research team, he takes a first-hand role in vetting and approving the addition of portfolio managers to the strategy’s underlying asset class sleeves. Stabilised sleeve manager turnover and continued conviction in Schoenhaut, Bernbaum, and Goldfeld underpin an upgrade of the People rating to Above Average from Average. The strategy’s comprehensive and well- structured tactical asset-allocation process remains intact and continues to support a Process rating of Above Average. This results in an upgrade of the Morningstar Analyst Rating to Bronze from Neutral for the cheaper share classes. More-expensive share classes retain their Neutral rating.

Downgrades

Alger Small Cap Focus I US – Bronze From Silver

Jeffrey Schumacher, CFA

Alger Small Cap Focus manager Amy Zhang is still a worthy draw, but a few weak spots drop its Process to Above Average from High. It earns a Morningstar Analyst Rating of Bronze across its share classes, including the clean I US class. Zhang’s investment approach is alluring, but this approach isn’t without risks. Portfolio-level risk management is modest; instead, Zhang hones in on risks facing each holding. This “bottom-up” view lets significant sector concentrations (mostly in tech and healthcare) and lofty valuation metrics (such as average price-to-earnings) occasionally build up. These aren’t new issues, but Zhang’s recent busy trading is. Annual portfolio turnover hit 57% in 2021 – not high by absolute standards, but unusual given her prior patience and her training at Brown Capital, where managers trade reservedly. Zhang hinted that market conditions (rather than company fundamentals, as her process would suggest) drove her decisions.

Threadneedle UK Z – Bronze From Silver

Teodor Dilov

Threadneedle UK continues to benefit from its seasoned manager, supported by a talented deputy and strong analytical resources, along with a consistently applied investment approach. We reiterate our conviction in the team’s capabilities and the People pillar remains at Above Average. However, our overall conviction in the manager’s process has weakened on the back of changes in the portfolio construction and failure to benefit from more recent style tailwinds. The Process pillar is downgraded from Above Average to Average, leading to the overall downgrade of the Z clean share class to Bronze from Silver. Ratings for other share classes range from Bronze to Neutral, depending on fees.

Rerated From Under Review

Rebeco Asia-Pacific Equities F – Bronze From Under Review

Claire Liang, CFA

Joshua Crabb will take over Robeco Asia-Pacific Equities on 1 July 2022, as current lead manager Arnout van Rijn will return to the Netherlands and join Robeco’s Sustainable Multi Asset team on 1 September 2022. Crabb has 26 years of experience and joined Robeco in late 2018, when he assumed the strategy’s backup manager role. Although he is an established value investor with solid track records on two Asia-Pacific ex-Japan equity strategies during his stint at BlackRock and Old Mutual Global Investors, his investment experience in Japan equities, which accounts for more than 30% of the strategy’s benchmark MSCI AC Asia Pacific Index, is limited, and we would like to see whether he can leverage the team’s idea generation in Japan to good effect. The 13-member supporting team’s recent loss of expertise, including van Rijn, also warrants caution. Crabb is expected to continue to employ the team’s value-oriented investment approach with a momentum awareness. We believe his involvement here since October 2018 as well as the structural elements in the investment approach such as the quantitative tools and teamwork will bring continuity. As such, we downgrade the People rating to Average from Above Average but maintain the Process rating of Above Average. The strategy’s cheaper share classes, including the F clean share class, have been downgraded to Bronze from Silver, while the more expensive share classes fall to Neutral from Bronze. The strategy was previously placed Under Review.


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

Hunter Beaudoin  is a fund analyst for Morningstar