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 January
1. Capital Group New Pers(LUX) Z
Coverage initiatied with a Gold rating. This fund is the Luxembourg-domiciled clone of the US-domiciled American Funds New Perspective, which also has a Gold rating. We think the strategy and team breed confidence. The managers seek growth across the globe and aim to profit from changes in global trade patterns. We think the firm’s multi-manager system, which helps them to handle the strategy’s large asset base, also lets each individual play to his or her strength. This factor is compounded by the managers’ long experience, proven abilities, and aligned interests with investors. Outperformance has been the norm here: this fund was launched in October 2015, but its US sibling has built an impressive multi-decade history. Last but not least, the fund’s pricing is competitive.
–Francesco Paganelli, fund analyst
2. Fidelity European High Yld Y-Acc-EUR
Downgraded from Bronze to Neutral. Despite the team’s continuity under Andrei Gorodilov’s lead and Ian Spreadbury’s continued involvement, we have concerns about their ability to add value within the fund’s broad universe. The opportunity set consists of bonds issued by European companies, irrespective of their currency of issuance. This results in a broader universe compared with most of its peers, especially in Eastern Europe and Russia. We also consider the turnover at Fidelity’s team of credit analysts to be on the high side relative to peers and the analyst team has a shorter collective tenure than competitors. Finally, with more than €4bn ($4.27bn) in assets under management, the strategy is one of the biggest in the European high yield space; we think the group could do better at passing on economies of scale and that the above-median fees are disappointing.
–Niels Faassen, analyst, manager research
3. Legg Mason RY US Smlr Coms A Acc $
Downgraded from Bronze to Neutral. We believe there have been issues with the implementation of the process here, namely poor sell discipline, questionable assessment of quality and weak portfolio construction. Although we appreciate the firm’s heritage of investing in US small-cap equities and the support that manager Lauren Romeo gets from Royce’s seasoned management team, we believe she hasn’t yet proved that she can execute the strategy successfully over a long period. Therefore, we believe a Neutral rating is a better reflection of our conviction.
–Lena Tsymbaluk, investment research analyst
4. Threadneedle UK Retl Inc GBP
Upgraded from Neutral to Bronze. These funds were rated Neutral following the appointment of Chris Kinder as lead manager in 2014. He replaced the previous manager Simon Brazier who had left the firm. Kinder had a strong track record on a small extended alpha fund, but not on a long-only product with significant assets under management, and this, together with team level changes, prevented a positive rating being awarded at that time. We have now seen evidence of Kinder’s ability to transfer his investment approach to this mandate and, as a result of our increased confidence, we have awarded the higher rating.
–Simon Dorricott, associate director, manager research
