Morningstar Fund Ratings: the Monthly Update

The Dimensional fixed income investment process is built on the information power of bond market prices and the shape of yield curves. This fund invests in bonds from investment-rated bond issuers from developed countries.

The fund systematically invests in bonds with higher expected returns as indicated by forward rates. This is done with a broadly agnostic view as per the nature of the issuer. However, the portfolio is built with several constraints to ensure maximum diversification. This systematic investing approach makes for simple and repeatable implementation. The diversification constraints at individual issuer level translates into a portfolio structurally biased to corporate bonds.

Also, the duration of the portfolio is kept within tight ranges relative to the benchmark of reference. This may hinder the fund´s ability to react to swift changes in the interest rate cycle and means that investors can be in for a volatile yearly return pattern. However, overall there is a fair chance of eke out returns above the benchmark over the long-term, not least considering the compounding benefits of relatively low fees relative to traditional active peers.

Jose Garcia-Zarate

PIMCO GIS Global Low Duration Real Return Inst USD Acc – Bronze

Morningstar has initiated coverage of Pimco GIS Low Duration Real Return with People and Process Pillar ratings of Above Average. The strategy’s cheaper share classes receive Morningstar Medalist Rating of Bronze, while its more expensive share classes are rated Neutral.

Currently, no clean share classes are available for the strategy. Pimco's European rates head Lorenzo Pagani has overseen this global inflationbond fund since 2019, supported by Pimco European rates manager Yi Qiao, veteran U.S. Treasuries expert Steve Rodosky, and government bond specialist Daniel He. The team’s deep knowledge of the global government-bond universe is a key strength here, as is Pimco's firmwide macro expertise, which influences the fund’s duration, yield-curve and credit risk positioning.

The managers make full use of their wide latitude to tread beyond their Bloomberg World Inflation-Linked 1-5 Year Index benchmark, having at times invested up to 20% of the portfolio in non-inflation-linked fare, such as corporate, securitized, and emerging-markets debt, as well as currencies—so far to good effect.

The strategy's opportunity set is more restrained than that of its full-maturity sibling, Pimco GIS Global Real Return, but it is nonetheless an attractive option for investors seeking access to the short-duration inflation-linked bond asset class.

Shannon Kirwin

Pzena Global Focused Value A USD Acc – Silver 

Pzena Global Focused Value boasts a disciplined team and a repeatable approach to deep-value investing. This team is highly experienced, with a strong group of supporting analysts and a well-defined investment culture, meriting an Above Average People rating. The three-person portfolio management team; Caroline Cai, Ben Silver, and John Goetz, adopt a collaborative approach with shared decision making.

Each has between 25 and 44 years of industry experience and has been with Pzena since the early 2000s at a minimum. The team's deep-value approach is systematic, with sound risk parameters. A quantitative ranking of the largest companies worldwide based on price/normalized earnings serves as a starting point. The goal is to find firms in the cheapest quintile capable of a turnaround to restore their earnings to historical norms.

While actively courting companies experiencing short-term stress invites risk, safeguards are in place, including attention to leverage and price volatility and soliciting external bear cases. This strategy's systematic and strict value approach with prudent risk considerations earns an Above Average Process rating.

This strategy isn't for the faint of heart, however. The portfolio typically displays volatility a few percentage points more than the Morningstar Category benchmark, leading to an uneven return profile. The strategy has compensated for this extra volatility and posted good results since refining its approach after the global financial crisis. For patient investors willing to accept the volatility, Pzena has plenty of merit.

Chris Tate 

Upgrades 

Robeco QI Emerging Conservative Equities C € – Silver from Bronze

Robeco QI European Conservative Equities C € – Gold from Silver 

Robeco's quantitative-based conservative equities range is managed by a six-member team led by Pim van Vliet, whose academic work has laid the conceptual foundation of the strategy's investment philosophy. This stable and experienced management team is well-supported by more than a dozen quant analysts dedicated to research and development.

All in all, Robeco's broader quant team is one of the best-equipped organizations in the systematic field; over time, it has successfully groomed young quant researchers in its talent pool, allowing them to add people with complementary skills.

The group continued to expand in 2022 with a few experienced hires, further strengthening and expanding its capabilities. The group’s cohesive culture, deep and growing bench of experienced managers and analysts, and impressive stability earn the team a People rating upgrade to High from Above Average.

The strategy adopts a repeatable, disciplined, and well-conceived approach to harvest the low-volatility factor, and its Process continues to earn an Above Average rating.

Francesco Paganelli, CF

Downgrades

Fidelity Asian Bond Y-Acc USD – Neutral from Bronze

This hard-currency Asian investment-grade-focused strategy has historically employed a high-conviction and contrarian investment approach. While lead manager Belinda Liao has continued to follow the same approach since taking the helm in January 2022, her tenure has not been immune to credit hiccups, including within the fund’s at-times concentrated exposure to the China property sector.

Consequently, despite the fund’s higher-quality tilt relative to Asian bond peers, it has delivered subpar returns while exhibiting higher volatility during the market’s rocky last few years. While the team has since trimmed many of the portfolio’s outsize bets and aims to apply stricter risk controls going forward, its impact on the strategy’s risk profile remains to be seen.

This warrants a downgrade in the Process Pillar rating to average, earning the strategy a Morningstar Medalist Rating of Neutral across all share classes including the clean Y-Acc USD share class.

Arvind Subramanian

Matthews Asia Dividend A USD Acc – Neutral from Bronze

The seemingly incessant organizational changes at Matthews International Capital Management weaken Matthews Asia Dividend's investment case. In recent weeks, the firm reshuffled the leadership of many of its strategies in the wake of their lackluster results and dismissed several of its portfolio managers, warrant a downgrade of this strategy's People rating to Average from Above Average.

The strategy is now in the hands of a management team that, for more than a decade, has guided Matthews Asian Growth & Income MICSX in a far more conservative way. The strategy's reawakened riskconsciousness merits an Above Average Process rating.

Many of the firm's changes in recent years have seemed the result of dithering rather than proactive deliberation. Some personnel departures have undoubtedly been losses to the firm. After a roughly five-year stretch of missteps, the firm is still working toward regaining its balance.

Robby Greengold

WS Lindsell Train UK Equity D – Bronze from Silver

Lindsell Train UK benefits from a veteran fund manager who has followed a well-defined investment philosophy for essentially his whole career.

The underlying philosophy is sound and has historically delivered. We point to emerging considerations relating to sell discipline and what we also see a lack of concrete, long-term succession planning.

We maintain a positive view but these considerations hold back our highest conviction. As a result, the fund’s clean D share class Morningstar Medalist Rating is downgraded to Bronze from Silver.

Daniel Haydon

Rerated from Under Review 

Matthews Pacific Tiger A USD Acc – Neutral from Under Review

Personnel turnover remains an issue at Matthews. The firm dismissed three portfolio managers and an analyst in December, and many of the remaining investment professionals took on new roles at the same time.

Many other changes that occurred between the end of 2019 and early 2023 played a major role in the mid-2023 downgrade of the firm's Parent rating to Average from Above Average. This strategy was hit by the latest round of changes.

Sharat Shroff was dismissed from his co-lead manager role here as well as from his comanager role on another fund, while Sean Taylor became a co-lead manager and Peeyush Mittal and Jeremy Sutch became comanagers here.

Inbok Song remains a co-lead manager, and Andrew Mattock and Winnie Chwang remain comanagers. Matthews Pacific Tiger's People rating drops to Average from Above Average and its Process rating declines to Above Average from High, owing to investment-team changes and other issues. The strategy was previously placed Under Review.

William Samuel Rocco

Moved to Under Review

Janus Henderson US Forty I1 USD – Under Review from Neutral

Janus Henderson US Growth I Acc – Under Review from Neutral  

Because of manager Doug Rao's upcoming retirement at year-end 2024, Janus Henderson Forty's Morningstar Medalist Rating is Under Review. Rao brings 25-plus years of industry experience and has run this strategy since joining Janus Henderson in 2013.

Results during his tenure were competitive. Comanagers Nick Schommer and Brian Recht will remain. Schommer joined this strategy as a manager in 2014 and his history working alongside Rao dates back even further to their previous firm, Marsico Capital Management.

Recht, a former consumer and communications analyst, was promoted to comanager on this strategy in March 2022. The strategy previously carried Morningstar Medalist Rating of Bronze or Neutral depending on the fees.

Eric Schultz

JOCHM UK Dynamic Y GBP Acc – Under Review from Silver

JOHCM UK Dynamic is placed Under Review on the announcement of Alex Savvides' upcoming departure.

Alex Savvides has successfully managed the strategy since its launch. Having initially joined JOHCM in 2003 to work alongside Mark Costar, he went on to develop this strategy's approach prior to launching in June 2008.

Michael Born

Jupiter UK Special Situations I Acc – Under Review from Gold

On Jan. 9, 2024, Jupiter announced the resignation of Ben Whitmore, lead portfolio manager of the Jupiter UK Special Situations fund. Whitmore will be leaving to pursue his ambition of establishing an independent value equities boutique in due course, subject to obtaining the necessary regulatory approvals.

Dermot Murphy, a comanager on the strategy, and Claudia Ripley, an investment director, will also be leaving Jupiter with Whitmore. Whitmore will retain responsibility for the strategy until the end of July 2024.

Around that time, portfolio management responsibility will pass to Alex Savvides, who will join from JO Hambro Capital Management, where he currently manages the GBP 1.3 billion UK Dynamic strategy and a further GBP 1 billion in segregated mandates.

Jupiter and Whitmore have agreed that his new boutique, once established, will not compete with Jupiter for a period of two years from his leaving date in relation to both the U.K. equity income sector and the non-U.K. open-end UCITS market.

Whitmore was an investor we rated highly, and his departure is disappointing. Given his pivotal role in the strategy since late 2006, we have placed the Jupiter UK Special Situations fund Under Review.

Daniel Nilsson