Morningstar Asia fund reviews and re-ratings – March 2017

The research firm’s “analyst rating” is forward-looking. On an annual basis, analysts review and if necessary re-rate the funds on a five-tier scale with three positive ratings of Gold, Silver and Bronze, a Neutral rating and a Negative rating.

The analyst rating differs from the firm’s backward-looking “star rating”, which assigns 1-to-5 stars based on a fund’s past risk- and load-adjusted returns versus category peers.

Morningstar’s sustainability rating, which was launched in March last year, helps investors evaluate how well the companies in a fund’s portfolio are managing environmental, social and governance (ESG) risks and opportunities.

Analyst ratings for March

Source: Morningstar; *All scored funds within a category are ranked by their Sustainability scores and grouped into five categories. The top 10% of scored funds are described as “high”, the next 22.5% as “above average”, the next 35% as “average”, the next 22.5% as “below average”, and the bottom 10% as “low”.

1. Eastspring Inv UT Pan European (available in Singapore)

Coverage initiated with a Bronze rating. John William Olsen took over this fund in July 2014, having joined M&G the same year from Danske Capital. M&G is the sub-adviser to the fund. He built strong track records at Danske on global and European strategies. Olsen employs the same process here, and we believe it is sensible and repeatable. It focuses on finding companies with sustainable long-term competitive advantages, and then waiting for an opportunity to buy a position at an attractive price. We believe the manager applies the process well and with consistency: the quality emphasis, coupled with the discipline on valuations, is clearly reflected in the portfolio’s characteristics.

–Samuel Meakin, investment research analyst 

2. BGF Global SmallCap A2 (available in Hong Kong and Singapore)

Fund under review from Bronze. Blackrock has restructured the team running this fund. It will be run by Kevin Franklin and Raffaele Savi of the group’s San Francisco-based scientific active equity (SAE) team. The fund will follow the current investment approach until 28 April 2017, during which time the former managers, John Coyle and Murali Balaraman, will assist in the transition to the SAE team. While the portfolio will be managed to the same investment guidelines, the change in management marks a significant change in investment approach – the SAE team follows a heavily data-driven, quantitative strategy. We are therefore placing the fund’s rating Under Review until we have spoken with the new managers to better understand exactly how the fund will be managed.

–Muna Abu-Habsa, director of manager research

3. BGF US Basic Value A2 (available in Hong Kong and Singapore)

Fund under review from Bronze. The fund’s Morningstar Analyst Rating is Under Review because Blackrock is replacing its lead manager and combining its investment team with that of another fund as part of a broad and dramatic restructuring of its active equity lineup.

Bart Geer, who has run this fund since defecting to Blackrock from Putnam Investments in late 2012, will leave the fund and firm later this year. His current co-manager, Carrie King, a holdover from previous manager Kevin Rendino’s team and a listed manager on this fund since 2009, will take over the portfolio with Joe Wolfe, a Blackrock employee since 2012 and former head of active quantitative research at Northern Trust. Wolfe helped Geer rebuild the quantitative screens he used at Putnam when he came to Blackrock.

King will continue to employ that process, which relied on both quant and fundamental techniques to pick stocks. But she will do it as part of a larger “Income and Value” team constructed around the crew running BlackRock Equity Dividend, rather than as a separate Basic Value team. As part of that integration, Basic Value analysts Bill Rubin, who had been with the team since 2011, and Eugene Rogovoy, who Geer hired in 2013, will leave the firm. Andrew Wright, who had been a member of the Basic Value team since 2013 and a BlackRock employee since 2009, will join King and Wolfe on the Income and Value team.

Geer’s approach produced mixed results here but had a longer successful track record at Putnam Equity Income. Combining quantitative screens and fundamental research is not an unusual strategy, but Geer exerted an unusual amount of control over the process here, and it is not clear how it will fare without his judgment and experience. King is seasoned but accumulated most of her experience with Rendino’s purely fundamental, contrarian approach.

–Fatima Khizou, manager research analyst