Upgrades
JPM Emerging Markets Income Ord (JEMI) – Silver from Bronze
Lena Tsymbaluk
The JPMorgan Global Emerging Markets Income investment trust has strong features including a capable leadership, deep analytical resources, and a structured and well-codified approach. The strategy is managed by Omar Negyal with the support of the Emerging Markets & Asia Pacific team composed of 92 analysts and portfolio managers. The bottom-up, income-oriented strategy targets an overall dividend yield of 130% of that offered by the MSCI EM Index. To execute the approach, Negyal leverages the deep analyst team, which conducts detailed fundamental analysis assessing the underlying quality of businesses, as well as sustainability of a dividend. Our conviction in the approach has increased, based on the manager’s disciplined and skilful execution, leading to an upgrade of the Process score to High. As a result, the investment trust has been upgraded to a Morningstar Analyst Rating of Silver from Bronze.
Downgrades
CT Managed Equity and Bond Z Grs GBP Acc – Neutral from Bronze
CT Managed Equity Focused - Z Grs GBP Acc – Neutral from Bronze
Tom Mills
The clean share class for two funds, CT Managed Equity and Bond, and CT Managed Equity Focused, each drop to a Morningstar Analyst Rating of Neutral from Bronze. This has more to do with the distribution of ratings amongst rivals in their respective Morningstar Categories. The People and Process Pillars remain at Above Average and Average, respectively. The funds continue to benefit from a team employing a disciplined top-down process. Alex Lyle, who has been manager since April 2008 and has run equity and multi-asset portfolios for more than 25 years, runs the strategies with the support of deputy Matt Rees. They are supported by a well-resourced and experienced asset-allocation team. The managers look to select from Columbia Threadneedle’s range of underlying funds they believe are best placed to express their house views and deliver good risk-adjusted returns over the medium term. Although their asset-allocation process is well established and has been put to good use, the fund research process used here doesn’t stand out as superior, supporting an Average Process rating.
Fidelity Asian High Yield I – Neutral from Bronze
Patrick Ge, CFA
Fidelity Asian High Yield’s relatively new leadership team is still finding its step. This, together with our reservations about the strategy’s high-yield commitment and subsequent implications for risk management, has lowered the appeal of this strategy. Tae-Ho Ryu and Terrence Pang took over as co-lead managers from their predecessor in July 2020, having previously supported the strategy for several years as a trader and credit analyst, respectively. However, they are less seasoned as portfolio managers versus our preferred peers. Short-term results under the duo have been mixed and the pair needs to demonstrate consistent value-add over changing market environments for us to gain confidence. The duo adopts an income-focused approach seeking issuers with a higher-than-average income stream, and while this approach has delivered solid results over the long term, the mandate’s aim to maintain a high level of yield for investors in its distribution share classes has resulted in risk-management concerns.
For example, its focus on income generation has resulted in some concentrated sector and issuer bets in recent years, particularly within China property, which has resulted in severe drawdowns that has marred performance under current leadership. With the Process Pillar rating downgraded to Average from Above Average, and the People rating reiterated at Average, the Morningstar Analyst Rating of the strategy’s institutional share classes have been downgraded to Neutral from Bronze, while all other share classes continue to sport a Neutral rating.
