Morningstar Fund Ratings: The Weekly Update

The systematic process aims to deliver steady outperformance at a marketlike volatility by gaining diversified exposures to selected factors that the team believes can be rewarded in the long run. However, the portfolio has consistently exhibited a clear value and quality bias, whereas its exposure to some of the lower-weighted factors such as momentum and low idiosyncratic volatility is less obvious and has been inconsistent over time, raising concerns over how effective the quant model is at navigating various market environments. The strategy’s alpha delivery so far has also been uneven, with most of the alpha gained over the past 1.5 years when the value style turned popular again.

Jupiter Japan Income I – Bronze

Daniel Haydon

Jupiter Japan Income follows a well-defined investment philosophy targeting yield and growth, and has been implemented consistently over the tenure of Dan Carter’s tenure. Carter has managed the fund since July 2016, though he was previously an analyst here since 2008, when the fund was managed by Simon Somerville. Carter has almost 20-years of industry experience, almost entirely in Japan equities and knows defined investment philosophy. They are guided by the notion that, over the long-run, persistent growth and yield premia will lead to outperformance against the index. The process is bottom up and supported by in-depth research and modelling.

We like the well-defined nature of what they are trying to achieve, and the consistency of execution. This has led to a core-like outcome, which we believe should lead to measured outperformance over the long run. The team size is admittedly compact, but this is mitigated by a well-tuned process, which focuses the workload, and judicious use of external resources. Overall, this supports a Morningstar Analyst Rating of Bronze for the I clean share class, with other ratings ranging between Neutral and Bronze depending on fees.

Mobius Emerging Markets – Neutral

Teodor Dilov

Mobius Emerging Markets offers a differentiated approach to investing in the emerging- and frontier[1]markets space. Seasoned portfolio manager Carlos von Hardenberg runs the strategy and is supported by a team of three analysts. While these resources seem sufficient at this stage, there has been high turnover in the investment team, and this along with a weak succession plan increase the key man risk here. The process is bottom-up-driven and aims to find quality companies that can deliver stable growth at reasonable valuations. While the universe in this inefficient area of the market is huge, the team filters it down to around 150 potential opportunities. The portfolio typically holds between 25 and 30 stocks and has high conviction in the top 10 positions. That results in a risk/return profile that can be quite different relative to the MSCI Emerging Markets SMID Cap Index and the global emerging markets small/mid-cap equity Morningstar Category average. With a People rating of Average and a Process rating of Above Average, all share classes receive a Morningstar Analyst Rating of Neutral.

Upgrades

BlackRock Global Funds - Global High Yield Bond D2 – Silver from Bronze

Hunter Beaudoin

BGF Global High Yield Bond benefits from an experienced cohort of portfolio managers and analyst breadth. While previous concerns of turnover on the European sleeve’s supporting team have held back our conviction, continued stability and solid performance since James Turner, BlackRock’s head of European leveraged finance, was named as a manager on this strategy in February 2019 result in an upgraded People rating to High from Above Average. The strategy follows a consistently executed, flexible investment approach that invests across sectors primarily in investment-grade credits, using exchange-traded funds and swaps to manage liquidity.

The managers have made effective use of this versatile approach, supporting a maintained Process rating of Above Average. As a result, the strategy's cheaper share classes retain their Morningstar Analyst Rating of Silver or are upgraded to Silver from Bronze, as is the case for the clean D2 share class. Other share classes are upgraded to Bronze from Neutral or are rated Neutral, depending on fees.

Rerated from Under Review

Templeton Global Balanced W(acc) USD – Neutral from Under Review

Thomas De fauw

Templeton Global Balanced was placed Under Review after Templeton announced that Alan Chua and Peter Sartori had stepped down from managing the equity portion of Templeton Global Balanced on 11 April 2022. Chua had been the equity lead only since December 2019 when he took over from Templeton-veteran Peter Wilmshurst. His successor, Douglas Grant, is a seasoned analyst and stockpicker but has no previous public track record of managing funds.

Michael Hasenstab remains in charge of selecting the portfolio's bonds together with Calvin Ho, with a solid research team to back up their calls. The recent leadership changes and turnover in the wider equity team gives us pause but we think the breadth of the equity analyst team at Templeton is supportive of an Average score. Combined with the Below Average Process score, we believe investors should still consider other options in this space. Less expensive share classes, including the W(acc) USD clean share class maintain a Morningstar Analyst Rating of Neutral while more expensive ones are rated Negative.