Morningstar Fund Ratings: The Weekly Update

We're back with a roster of upgrades and downgrades, including another bad week for UBS's china allocation opportunity strategy

Dimitar Boyadzhiev 1 June, 2022 | 8:06AM
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New Ratings  

Baillie Gifford Shin Nippon – Silver

Daniel Hayden

The Baillie Gifford Shin Nippon investment trust follows a well-established investment philosophy: long-term, high-growth investing in small cap Japan equities. The investment trust structure is also a benefit here, permitting the fund to invest into lower market cap ideas with less concern about liquidity, to invest modestly in unlisted companies, and to introduce sensible leverage. The combination of an intellectually sound growth approach and consistently applied process leads to an Above Average rating for process. The trust is managed by a core team of two: lead manager Kumar and dedicated Japan small cap analyst Paul Schwerda, who has three-years' experience. They also have the support of the large Baillie Gifford Japan equity team, which comprises six portfolio managers, four analysts, and two on-the-ground researchers in Tokyo. This supports an Average people pillar rating. Recent performance has been very poor, but the long term track record using this investment philosophy remains strong. Fees are competitive. Overall, this earns a Morningstar Analyst Rating of Silver.

Xtrackers MSCI World ESG ETF – Bronze

Dimitar Boyadzhiev

Xtrackers MSCI World ESG ETF's environmental, social, and governance mandate results in significant active risk relative to its parent index, which may or may not be rewarded over the long term. However, the fund still retains many of the benefits of a broadly diversified, market-cap-weighted, low-turnover index fund. It also has a price tag very competitive with those of its category peers. The fund tracks the MSCI World Low Carbon SRI Leaders Index, which targets companies with leading ESG practices and low carbon emissions within large- and mid-cap stocks from developed countries. The index starts by filtering out companies with significant controversies or involvement in controversial businesses from the MSCI World Index. These considerations earn the fund a Morningstar Analyst Rating of Bronze.


UBS (Lux) Key Selection SICAV – China Allocation Opportunity $ Q – Neutral From Bronze

Patrick Ge, CFA

Several key departures across the investment teams that support UBS China Allocation Opportunity reduce our conviction in the overall team and its ability to execute the investment process. The departures of lead manager and asset allocator Gian Plebani in May 2022 and bond-sleeve manager Ross Dilkes in January 2022, who combined are responsible for half the strategy’s active risk, lower our confidence here. Plebani was replaced by new hire Jade Fu, who is an experienced multi-asset manager, but we need time to evaluate her capabilities and how she navigates the investment styles of the underlying managers. Dilkes is temporarily replaced by head of Asian fixed income and emerging markets Hayden Briscoe.

While seasoned, he does not have the same credit experience as Dilkes, which raises questions about his ability to execute the bottom-up investment process. Plus, his future commitment as the sleeve manager remains uncertain. Capable equity-sleeve manager Bin Shi remains a steady presence here, although his supporting team has seen ongoing turnover and team development has been slow. These concerns prompt a downgrade of both the People and Process pillars to Average from Above Average, and the strategy’s Morningstar Analyst Rating is downgraded to Neutral from Bronze and Silver across all share classes, depending on fees. The clean Q share class is downgraded to Neutral from Bronze.

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

Dimitar Boyadzhiev  is a Passive Strategies Research Analyst for Morningstar

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