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, 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 December
1. Aberdeen Glb Asia Pac Eq A2
Our conviction in the Aberdeen Asia Pacific team has wavered, whilst peer competition has been getting stronger, resulting in an overall drop in our conviction levels. Both the Asian equities and the Japan equities teams have seen some turnover within the ranks over the last few years. That said, Flavia Cheong still leads a quality outfit, which is well resourced and flat structured, with many of the team having spent their whole investment career at the firm. Nonetheless, we feel they are no longer seen as one of the elite groups in this space. The investment process is tried and tested – quality and valuation the major keys. Aberdeen is a patient investor who is willing to back quality businesses that are well managed. A potential criticism is that the team hasn’t always been critical enough when looking at the continued merits of some long-term holdings where the investment thesis has started to deteriorate. We are encouraged by the measures put in place by the team to help potentially alleviate this issue. Significant outflows (which are down from peak levels) has lessened previous capacity concerns. Whilst we retain conviction in the funds, we do feel there are more compelling choices available.
–Mark Laidlaw, senior analyst, manager research
2. Allianz Income and Growth AM USD
Coverage initiated with a Neutral rating. This income-oriented strategy aims to achieve high payouts monthly; therefore, the portfolio is split evenly among high-yield bonds, convertible bonds, and equities with covered calls. Compared with its category peers in the USD Moderate Allocation Morningstar Category, historic risk figures are generally higher because of the fund’s high allocation into risk assets. The process is designed to offer a higher yield than its income- oriented peers, and payouts result mainly from short-term capital gains. This, coupled with the poor transparency into the fund’s underlying components, leads to a Neutral rating.
–Barbara Claus, fund analyst
3. BGF Global High Yield Bond A2 USD
Coverage initiated with a Bronze rating. The fund is managed by five experienced portfolio managers, including Jimmy Keenan, David Delbos, Mitch Garfin, Michael Phelps and Jose Aguilar, each with different sets of responsibilities. We also like the strength of analyst support the team enjoys. Rather than sticking to a preferred spot on the credit quality spectrum, the fund can invest in different parts of the capital structure and the managers have used this flexibility to their advantage thus far. It should be noted that given the strategy’s colossal size (approximately $43bn as of end-October 2016), the fund could have trouble staying nimble in certain areas of the high yield market.
–Wing Chan, director, manager research
4. Fidelity Asian Smaller Cos A-Acc-EUR
Coverage initiated with a Bronze rating. With Nitin Bajaj we believe that this fund benefits from a high calibre fund manager backed by substantial regional resource. We consider his disciplined stock-specific investment approach to be well executed and over the longer term we would expect this approach to add significant value for investors. We have a high regard for Bajaj and his consistency of approach, which is reflected in the impressive performance profile of both this fund and the Fidelity Asian Values investment trust that he manages in an identical manner. The overall merit of the proposition gives us a material level of confidence in the fund.
–David Holder, senior analyst, manager research
5. Parvest Bond Asia ex-Japan C C
Coverage initiated with a Neutral rating. This fund has been managed by Singapore-based Adeline Ng since 23 December 2001. Ng comes across as a knowledgeable investor; however, we have concerns about the high turnover of the analyst team that directly supports her. Although the fund’s credit-focused investment process is sensible and has delivered respectable long-term peer-relative returns, we note that it is dependent on the analyst team, which is relatively new. Hence, we need more time to see how the members work together to contribute to the process.
–Don Yew, analyst, manager research
6. Templeton Emerging Markets A Ydis USD
Upgraded to Neutral from Negative. We are optimistic about the appointment of strategy leads Chetan Sehgal and Carlos Hardenberg, who have built strong track records on the Templeton Emerging Markets Group’s emerging-markets smallcap and frontier-markets strategies, respectively. As strategy leads, they are mandated to ensure greater consistency among the various vehicles under the Templeton emerging-markets strategy. To that end, they took over the UK-listed Templeton Emerging Markets Investment Trust in late 2015 and have delivered promising returns so far. While Dennis Lim and Tom Wu remain named managers on the fund, we are encouraged by the oversight provided by Sehgal and Hardenberg. The strategy leads have brought about sensible improvements to the investment process, which focuses on stocks that appear cheap relative to their five-year projected earnings potential. This includes increasing the number of portfolio holdings to mitigate concentration risks and introducing portfolio construction guidelines around sector and country allocations. Given a number of enhancements being made to the fund, we believe it deserves a second chance.
–Germaine Share, senior analyst, manager research
