Morningstar Fund Ratings: The Weekly Update

We're back with another roster of upgrades and downgrades, including four new ratings for funds

Hunter Beaudoin 23 June, 2022 | 10:37AM
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Upgrades

Allianz Continental European C Acc – Silver from Bronze

Allianz Euroland Equity Growth R – Bronze from Neutral

Allianz Europe Equity Growth Select R – Bronze from Neutral

Allianz Europe Equity Growth R – Bronze from Neutral

Allianz Wachstum Europa R – Bronze from Neutral

Ronald van Genderen, CFA

Seasoned and highly regarded Thorsten Winkelmann leads this 12-strong high-quality team, mixing experienced members with talented but more junior members. Since 2017, it has seen several changes, but it is now on back stable footing. The changes included the departure of two members in 2017, including co-head of the team Matthias Born, while in the same year the remit of the team was broadened with the launch of a global product, while the team’s original heritage lies in European equities. The formation of the Global Growth team in May 2020 by merging this European Equity Growth team with Allianz’s Global Equity team was a positive as it added global equity experience and analytical resources to the team, but four members of the former Global Equity team departed during 2020 and 2021. However, the team was reinforced with two hires in 2019 and one in 2021, in accordance with Winkelmann’s hiring policy these were junior people who will be trained in his philosophy. Although personnel turnover and team restructurings reduced our conviction, we’re reassured now Winkelmann has steered the team into calmer waters and believe it’s now well-resourced leading to an increase in the People Pillar score to Above Average from Average. As a result, all share classes for Allianz Continental European are upgraded with ratings now ranging from Bronze to Silver, with the clean C Acc share class receiving a Silver rating. For Allianz Euroland Equity Growth, Allianz Europe Equity Growth, Allianz European Equity Growth Select and Allianz Wachstum Europa, some of the funds’ share classes maintain their Bronze rating, while others are upgraded to Bronze from Neutral, including the clean R share classes, and the more expensive ones remain Neutral. 

Downgrades

Manulife Global Quality Growth (ex U.S.) W USD Acc – Neutral from Bronze

Drew Carter

Manulife Global Quality Growth (ex U.S.) boasts a solid core management team that effectively leans on subadvisor Wellington’s resources and plies a disciplined, balanced approach. Yet , its built-in lack of U.S. exposure limits its appeal in the context of the global large-cap growth equity Morningstar Category, warranting a downgrade of the Process rating to Below Average. This results in a downgrade of the Morningstar Analyst Rating to Neutral from Bronze across all share classes, including the clean W USD Acc share class.

Orbis OEIC Global Equity – Neutral from Bronze

Orbis SICAV Global Equity – Neutral from Bronze

Orbis Global Equity – Neutral from Bronze

Bhavik Parekh, CFA

Orbis Global Equity has significantly changed its portfolio management structure. This, along with the fund’s significant underperformance, due to its contrarian approach, has given us cause to pause. When considering both these facts, our conviction in this strategy has materially fallen and we suggest a period of time is needed to assess whether Orbis will be able to successfully move forward. Veteran investor William Gray has handed full responsibility of the strategy to Adam Karr, who headed up the North American analyst team. Almost immediately, Karr has instigated a significant change in the portfolio management responsibilities for this fund, seeing three portfolio managers step off the fund and one joining. Furthermore, Karr, who previously managed the US sleeve, and Graeme Forster, who has managed ex-US portfolios, will both have a global mandate alongside Ben Preston who continues his global sleeve. We have concerns that moving from US only and non-US only approaches will take time to bed down. While we understand the rationale for this change, we are not as yet convinced. Investors must consider that the contrarian approach leads to performance outcomes that can be extremely different compared to the benchmark; this combined with the change to the portfolio management responsibilities and structure leads us to lower our conviction. The Morningstar Analyst Rating is downgraded to Neutral from Bronze.

UBS MSCI UK IMI SRI – Bronze from Silver

Dimitar Boyadzhiev

UBS MSCI UK IMI SRI offers a pragmatic approach to gain exposure to UK equities with a strong focus on environmental, social, and governance factors, including focus on reducing carbon emissions. Its portfolio is well-diversified across sectors and its ongoing charge is competitive. The index is a soundly constructed, well-diversified, and representative benchmark for the global developed-markets large- and mid-cap market. Active risk, as measured by tracking error versus the MSCI UK IMI parent index, has been nearly 5% annualised from November 2014 to May 2022. This means the fund’s risk/return profile may deviate significantly from widely followed UK stock indexes, such as the FTSE All-Share. This is evidenced by its higher realised tracking error during the recent market turbulence, and it limits our conviction. The fund’s Morningstar Analyst Rating has been downgraded to Bronze from Silver.

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