Morningstar Asia fund reviews and re-ratings – December

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.

Analyst rating changes – December 2015

Source: Morningstar

1. BGF Asian Tiger Bond A2

Coverage is initiated with a Bronze rating. This strategy ticks a lot of the boxes for those investors looking for broad Asian fixed income exposure. The remit here is to offer a portfolio that is primarily (at least 70%) made up of US dollar denominated Asian debt securities, with an overlay in local currency debt instruments and Asian currencies. The strategy is managed by head of Asian fundamental credit, Neeraj Seth, a key factor in our positive view. Seth has been at the firm for a number of years and is supported by head of Asia-Pacific fixed income, Joel Kim. Backing the duo is a well-resourced investment team that has been boosted over the last few years. The portfolio management duo have proven their worth since taking on the strategy in mid-2012 comfortably outpacing the Morningstar Asia Bond Category. A competitive fee also adds to the appeal here.

—Mark Laidlaw, senior manager research analyst

2. First State Asian Quality Bond I

Coverage initiated with a Neutral rating. Nigel Foo assumed lead portfolio management responsibilities in September 2012. He is supported by Jamie Grant, who is head of Asian fixed income and joined the firm in November 2013, and senior portfolio manager Nicole Hsieh. While long-term returns have been respectable, we would like some time to build comfort around a fairly new portfolio management team that has had a moderate level of turnover and an evolving investment process. While the fund is reasonably priced, we think that there are more-attractive options within the Asian fixed-income space at this time.

—Don Yew, manager research analyst

3. First State Glbl Listed Infra I

The fund has been moved down to Bronze from Silver. Peter Meany is an experienced infrastructure investor with over a decade of investment experience and we hold him and his team of infrastructure specialists in high regard. His expertise in this space, in conjunction with a rigorous and well-thought-through process has served investors well thus far. Nonetheless, we note this is a peer group with a number of talented teams and as a result, we believe this particular team ranks a notch lower relative to other listed infrastructure offerings that Morningstar follows globally.

—Fatima Khizou, manager research analyst

4. First State Indian Subcontinent I

The fund has been moved up to Silver from Bronze. Following the split of the First State Investment business in July 2015, this strategy sits within the umbrella of First State Asia. Our increasing conviction lies with the abilities of the portfolio manager, Vinay Agarwal, who has been in place since August 2012. He comes across as a shrewd investor and is well-backed by the impressive investment team at First State Asia, led by Martin Lau. Importantly, the split has had zero impact in investment philosophy – the focus remains on finding quality companies with trustworthy management that enjoy sustainable earnings drivers and are not trading at lofty valuations. This process is robust and has proved itself in all market conditions. A proactive approach to capacity (the strategy remains closed to new investors) and a competitive fee are further reasons we see this as a strong choice in a competitive landscape.

—Mark Laidlaw, senior manager research analyst

5. JPM Russia A (acc) USD

Upgraded to Bronze from Neutral. The fund benefits from an experienced manager in Oleg Biryulyov, who has managed the fund since November 2007, coupled with a proven bottom-up stock selection approach. The introduction of defined risk controls in December 2011 has resulted in a reduction of the fund’s risk levels, significantly improving its risk-return profile. This has increased our conviction in the manager’s ability to successfully build a high conviction portfolio, while keeping relative risk under control.

—Lena Tsymbaluk, investment research analyst

6. JPMorgan China A (dist) USD

The fund is under review following a change in lead manager. Effective 1 January 2016, Howard Wang will replace Song Shen as the key decision-maker on the fund. We know Wang from his successful JPMorgan Greater China fund, which he will continue to manage. Song managed the fund between August 2012 and December 2015 and had roughly performed in line with the benchmark over his tenure. As it remains to be seen what changes Wang will bring to the fund, we are placing this fund under review until we have the chance to speak to Wang and issue an update on the Morningstar Analyst Rating.

—Germaine Share, senior manager research analyst

7. JPMorgan China Pioneer A-Share

The fund is under review following a change in lead manager. Effective 1 January 2016, Song Shen will replace Lilian Leung as the key decision-maker on the fund. We know Shen from his stint on JPMorgan China, which primarily invests in Hong Kong-listed H-shares. Leung managed the fund between July 2010 and December 2015 and had underperformed the benchmark over her tenure. As it remains to be seen what changes Shen will bring to the fund, we are placing this fund under review until we have the chance to speak to Shen and issue an update on the Morningstar Analyst Rating.

—Germaine Share, senior manager research analyst

8. JPMorgan Multi Income (mth) – HKD

Coverage initiated with a Bronze rating. This Hong Kong-domiciled fund is co-managed by Hong Kong-based Jonathan Lowe and New York-based Michael Schoenhaut. Schoenhaut has been with the firm for 18 years and is also the lead manager on US-domiciled JPMorgan Income Builder, which shares an identical multi-asset-income strategy and also has a Bronze rating. Although the fund features a few adjustments as a result of local market needs and regulations, most notably the inclusion of emerging-markets securities in its custom benchmark, our conviction lies in the excellent leadership of Schoenhaut and Lowe and the well-established underlying investment process. In addition, the fund is attractively priced, making it an appealing choice for income-oriented investors.

—Don Yew, manager research analyst

9. JPMorgan Pacific Securities (acc) – USD

Coverage initiated with a Neutral rating. Managed within the firm’s emerging markets and Asia-Pacific equities team, this strategy offers a reasonable way to gain exposure to the Asian region, including Australia and Japan. Aisa Ogoshi is lead manager and shows a solid grasp of the factors driving markets and their influence on stocks within the portfolio. She’s been with the firm for over 17 years and the named portfolio manager since June 2012. Her involvement with the strategy stretches back to 2005 and is well-supported by co-managers Mark David and Robert Lloyd, both of whom were appointed in May 2015. The process is driven by growth and quality tilts with a preference for firms that are seen to be strong franchises and display the ability to consistently grow over time. The manager’s track-record is limited but shows promise thus far and the strategy boasts an attractive fee base. We are cautiously optimistic about prospects here going forward.

—Mark Laidlaw, senior manager research analyst

10. Schroder ISF Asian Smaller Coms A

Coverage initiated with a Bronze rating. The fund is led by Paul Rathband, who has 24 years of investment experience. He joined Schroders in August 2011 to reinvigorate the fund and has succeeded so far by delivering stellar returns since March 2012. We like that he is dedicated to managing the small-cap strategy. The quality-growth-focused investment process incorporates sensible risk guidelines, which we believe is particularly important when running a small-cap mandate. In addition, the fund is reasonably priced, making it a solid choice for Asian small-cap exposure.

—Germaine Share, senior manager research analyst

11. Schroder ISF Euro Corp Bd A Acc

Upgraded to Bronze from Neutral. The credit team at Schroders was part of a large reorganisation in 2012, which introduced changes at the portfolio manager level and within the analyst team. Experienced credit portfolio manager Patrick Vogel joined as head of European credit and fund manager for the strategy. On the leadership front, he is joined by head of UK credit, Alix Stewart and head of Euro high yield, Konstatin Leidman. Vogel changed the investment process to a themes-based approach, with increased involvement of the credit analysts. Since the changes took place, the analyst headcount has also increased, which we believe to be positive and key to the new investment style. The robustness of the process and value-adding credit research capability have resulted in a significant improvement in performance over the past three years.

—Carlos Lucar, manager research analyst

12. Schroder ISF Euro Equity A Acc

Upgraded to Silver from Bronze. Manager Martin Skanberg is an experienced and pragmatic portfolio manager who has made excellent use of the well-resourced European analyst team, relying heavily on their fundamental analysis. The fund has no style bias and the manager will tilt the portfolio to reflect the areas where he sees the most opportunities. Skanberg has delivered competitive cumulative results while performance has been steady on a calendar-year basis in keeping with our expectations of a fund manager who is style agnostic but is willing to take risk at the stock level.

—Daniel Vaughan, investment consultant

13. Templeton Asian Bond A Acc USD

Coverage initiated with a Bronze rating. The strategy is managed by the firm’s global macro team led by chief investment officer Michael Hasenstab. Hasenstab is well known to Morningstar and is someone we hold in high esteem. Supporting him is a strong team made of macro specialists, portfolio managers, quant analysts and dedicated traders. Additional support comes from the wider Templeton fixed income team made up of 100 specialists across the globe. Day-to-day management lies with Singapore-based Vivek Ahuja and Dong Il Kim, who sits in Korea. The approach here is unconstrained and conviction-based, driven by a combination of robust economic research and valuation analysis. Multiple sources of potential alpha are targeted – including duration, currency, credit (sovereign and corporate, both local and hard currency) and security selection.

—Mark Laidlaw, senior manager research analyst

14. Templeton Asian Growth A Ydis USD

Downgraded to Negative from Neutral. Despite lead manager Allan Lam’s wealth of experience and long tenure on the fund, our conviction in him has significantly weakened. He has failed to deliver for investors in this fund and also in other funds that he manages. More worrisome, we do not see any clear initiatives to salvage the fund. Ineffective and inconsistent execution of the investment process has cost investors, and the fund’s recent devastating showing has weighed heavily on its once-impressive long-term track record. This, along with its expensive fees, lead us to believe there are better options for Asia ex-Japan equity exposure.

—Germaine Share, senior manager research analyst

15. Templeton Asian Smaller Coms A Acc USD

Coverage initiated with a Bronze rating. Veteran portfolio allocators Chetan Sehgal and Vikas Chiranewal have managed the fund since inception and have delivered solid returns. Their impressive track records on the other funds that they manage give us further confidence in their abilities. They have incorporated sensible tweaks to Templeton emerging-markets group’s investment process to cater to the small-cap mandate. Although the fees could be improved, our conviction in the portfolio allocators makes this one of our preferred options for those seeking exposure to Asian small-cap equities.

—Germaine Share, senior manager research analyst