Morningstar Asia fund reviews and re-ratings – April

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.

The analyst ratings for April 2016:

Source: Morningstar

1.       Aberdeen Global Asian Smaller Cos A2

Coverage initiated with a Neutral rating. Management of the  strategy  lies  within  the  firm’s  Asian  equities  team,  led  by  the  experienced  Flavia  Cheong.  The team is collegiate in  nature  and  acts  as generalists as opposed to having dedicated sector or country responsibilities. The process here mirrors that applied for all Aberdeen equities strategies – strong focus on quality and value, something we view as a positive for investors. Aberdeen is a patient investor, less likely to fall for fads or hot themes, resulting in a portfolio that can at times bear little resemblance to peers and its underlying index. A couple of factors hold back our conviction here – a large asset base can make it harder to play at the more illiquid part of the market, and the insights shown don’t match what we’ve come to expect from its large-cap offering. We feel this is a reasonable option, but the firm’s top strengths are best expressed in other strategies.

— Mark Laidlaw, senior analyst, manager research

2.       Aberdeen Global Indian Equity A2

Coverage initiated with a Bronze rating. Management of the strategy lies within the firm’s Asian equities team, led by the experienced Flavia Cheong. The team is collegiate in nature and acts as generalists as opposed to having dedicated sector or country responsibilities. The process here mirrors that applied for all Aberdeen equities strategies – strong focus on quality and value, something we view as a positive for investors. The strong focus on governance and management are strengths here. Aberdeen won’t invest in a company until it has met with management, which is important given the large level of family ownership among listed Indian equities. Aberdeen is a patient investor, less likely to fall for fads or hot themes, resulting in a portfolio that can at times bear little resemblance to peers and its underlying index. Capacity is a potential factor, but, to the firm’s credit, it hasn’t had an impact on returns, which are solid relative to both peers and its index over time. This is a solid choice in a competitive landscape.

— Mark Laidlaw, senior analyst, manager research

3.       Allianz Euro High Yld Bd A EUR

Downgraded to Neutral from a previous rating of Bronze. Despite the experienced and long-tenured manager, we have become less enthusiastic about this fund. Along with the increase in the assets under management for the euro high-yield strategy (€2.3bn as of the end of February 2016), we have noticed a decrease in the fund’s active share and an increase in the number of issuers in the portfolio. This makes the fund’s approach less distinctive than in the past. These developments in combination with the disappointing results from security selection have lowered our conviction in the quality of execution of the investment process.

— Niels Faassen, fund analyst

4.       JPM Emerging Mkts Dbt A (acc) USD

We have awarded a Neutral rating. The fund boasts a thorough and structured process, a large and experienced analyst team and below-average fees for retail investors. However, given that current manager Emil Babayev has run the strategy for less than a year and has no prior track record as lead manager of a fund, we are keeping to a Neutral rating for now until we have an opportunity to observe the manager’s skill.

— Shannon Kirwin, fund analyst

5.       PIMCO GIS Emerg Local Bond E USD Acc

Downgraded to Neutral from Bronze. Although we continue to be impressed by the depth and experience of the firm’s emerging markets team, several of the fund’s very large single-country bets in recent years have marred its relative performance record and sown doubts about the manager’s approach to risk management.

— Shannon Kirwin, fund analyst

6.       Schroder ISF Japanese Equity A Inc

Coverage initiated with a Neutral rating. Tokyo-based lead portfolio manager Shogo Maeda has managed the fund since 30 June 2006 and has 32 years of investment experience in Japanese equities. He is supported by Kazuhiro Toyoda, who was appointed co-manager in January 2016. We would like to build more comfort around experienced lead manager Maeda and see a more consistent execution of a sensible investment process. Despite the backing of a large  and experienced analyst team and a sensible investment process, Maeda has delivered mediocre returns over the long term. Coupled with an average fee level, we think that there are more-attractive options within the Japan large-cap equity space.

— Don Yew, Analyst, manager research

7.       UBS (Lux) EF China Oppo (USD) P

Coverage initiated with a Bronze rating. Bin Shi has managed the fund since July 2010 and brings 22 years of investment experience, most of which was dedicated to managing Chinese equities. He focuses on current and upcoming industry leaders in a few secular growth sectors, with ample leeway to go off-benchmark and invest across the market capitalisation spectrum. He has delivered impressive returns both on this fund and on UBS (Lux) Equity Fund-Greater China, which he has managed in a similar manner for over a decade. Although the fund is relatively expensive, we believe the manager’s investment savvy and his undeniable track record make this an appealing choice.

— Germaine Share, senior analyst, manager research