A Look at What Funds Morningstar Might Start Covering Next

Lukas Strobl is joined by Jeffrey Schumacher for a look at Morningstar's Prospects List

Lukas Strobl 29 January, 2024 | 9:31AM
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Lukas Strobl: It's a new year and Morningstar has a new prospects list for you – that is our analysts' semi-annual list of funds that they might add to full coverage in the future. Jeff Schumacher's team creates and maintains this list and he is with me today.

So, Jeff, what are some of the most interesting funds that you've added to your prospects?


Jeffrey Schumacher: Yeah, so we have added 16 funds to the prospects list over the last edition and there are three that I wanted to highlight here. So, the first one is JPMorgan Global Dividend. So, this strategy is led by an experienced and well-resourced team applying a well-thought-out different strategy, in our view. So, there are three portfolio managers in total running this strategy, but they lean heavily actually on JPMorgan's extensive and experienced analyst team who provide inputs in idea generation but also fundamental analysis on around 1,700 stocks that they can choose from in their dividend universe. So, what's really interesting about this strategy, in our view, is the strategy that's applied because it's built on an investment process that has been tried and tested actually within other JPMorgan strategies that we already cover. So of course, this framework has to be adjusted a little bit to suit the dividend universe, but overall, we have great confidence in the approach. So that's definitely a reason for us to keep monitoring that strategy.

So, the second one I wanted to highlight is MFS Meridian Contrarian Value. So, this strategy is managed by two talented value managers who are very keen to explore the overlooked areas of the stock market to look for some controversies or temporary setbacks at companies to identify mispricings, but at the same time, they also keep a close eye on a company's balance sheet, for example, to just make sure that they are avoiding those potential value traps. I think the portfolio here looks also interesting. It's very concentrated, comprising approximately 30 positions. So, the convictions are on full display. The managers also invest throughout the market cap ladder. The portfolio is also managed with a long-term mindset, which is quite essential in our view to be successful in a value strategy. And it also is visible in the turnover of the portfolio, which is typically around 10% to 25% a year.

The third strategy that I wanted to mention here is Neuberger Berman Global Sustainable Value Fund. So, this fund has been managed by three portfolio managers since inception, Jonathan Bailey, Ray Carroll and Simon Griffiths. So together they run this quantitative strategy. So that also means that their role as portfolio manager is definitely different from a traditional, fundamental-focused portfolio manager, as these portfolio managers are mostly analyzing the output of the model but also spend considerable time on refining the model, developing the quantitative approach, for example, by introducing new data sources into the model. So, the model itself has currently a tilt towards value and income factors, but those are also balanced out by including other factors like quality and momentum, also again to avoid value traps. Execution of the strategy has been encouraging and that's definitely why we have the strength on our radar.


Strobl: Now, of course, ideally these strategies will graduate into full coverage, and you've mentioned some of the metrics and processes that you look at. What would you say are the aspects of a fund that are most important in determining whether the fund is taken on into analyst coverage?


Schumacher: Yes, I think for the decision to take a fund to full coverage, there are several factors that we take into account like client demand, for example, but also the current quality of coverage that we have of funds in certain categories. But above all, I think it's really important that the analyst covering the fund or discovering the fund that he or she is very convinced about the strategy's potential to generate a positive alpha after fees over a full market cycle. That's what's really essential. So that means that the analyst must have a high conviction in the team that runs the strategy but also in the quality of the investment approach. And which of the two is most important depends a little bit, I guess, on where we think the strategy has an edge. Some prospects are added to the prospects list because we think they apply a unique process. Others make it to the list because we think highly of the investment team. And we need to build confidence in those distinctive features, which we try to do in the various manager meetings that we have before making a decision to graduate a strategy to full coverage.


Strobl: So, can you give us a few examples of funds from last time we spoke, your most recent prospects list, that have made it into coverage that ticked these boxes you just outlined?


Schumacher: Yeah, so since the last edition, actually four strategies graduated from the prospects list, so that's great. And one of them is DWS Invest Conservative Opportunities. And we think this is a very solid option for multi-asset investors, as in our view, the strategy benefits from a strong portfolio management team, a differentiated process and also solid risk management. So, the strategy here is managed by Thomas Graby since launch of the strategy in August 2019. And while he is not maybe the most seasoned lead portfolio manager on the strategy, we also draw additional comfort from the experience and collaboration within the wider Multi Asset Total Return team at DWS. So, Thomas Graby strictly adheres to a strict risk target of keeping volatility below 5% combined with a maximum drawdown target of 7.5%. So those are quite strict guardrails. But outside of those guardrails, actually the manager has considerable leeway to position the portfolio as he sees fit. And he has been quite successful with it, so far realizing an impressive track record with the strategy. So, all in all, I think it's a promising strategy that also earns above average pillar ratings on both the people and process pillars.


Strobl: Well, I'm excited to see who makes it off the list this year. So, we'll speak again in half a year. Thanks for this, Jeff. For Morningstar, I'm Lukas Strobl.

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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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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
DWS Invest Conservative Opps LC109.54 EUR0.32Rating
JPM Global Dividend A (acc) EUR261.70 EUR-0.17Rating
MFS Meridian Contrarian Value A1 EUR16.31 EUR-0.44
Neuberger Berman Glb SustValGBPI5Acc11.54 GBP-0.43

About Author

Lukas Strobl  is the editorial manager for EMEA at Morningstar.

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