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Morningstar Asia fund reviews and re-ratings – May

Downgrade for HSBC; upgrades for Fidelity; coverage initiated on funds from JPMorgan and Schroders.

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 May 2016:



1. Fidelity America A-USD

Upgraded to Bronze from a Neutral. Although [Angel] Agudo only took the helm here in June 2014, he has been managing Fidelity American Special Situations using the same investment philosophy since December 2012. The approach, which was introduced by Agudo upon his arrival, seeks out companies that have gone through a period of underperformance, where little value is ascribed to their recovery potential, and therefore there is strong relative upside/downside performance potential. Overall, we believe that the manager has demonstrated his ability to successfully build a balanced portfolio of best ideas while also keeping risk under control. The disciplined approach has led to sustained outperformance and the fund therefore earns a Bronze rating.

Lena Tsymbaluk, Investment Research Analyst


2. Fidelity Asian Special Sits A-USD

Upgraded to Bronze from Neutral. Suranjan Mukherjee has managed this fund since July 2012 and our belief in him has steadily increased. The name ‘special situations’ can be a misnomer or distraction at times, simply put the manager’s process is largely driven by robust bottom-up research. The manager looks at his investible universe in terms of three broad categories – restructuring, franchises, and global leaders. We like that Mukherjee is able to apply names held to the particular category they fit. Performance here has been strong, under Mukherjee’s stewardship the fund has comfortably beaten both its index and wider peer group. We feel this is an attractive option in a highly competitive investment category.

— Mark Laidlaw, Senior Analyst, Manager Research


3. HSBC GIF Indian Equity AD

Downgraded to Neutral from a Bronze rating. Sanjiv Duggal is one of the most experienced managers in this space, having managed the strategy since its launch back in March 1996. He’s backed by a settled investment team, with key support coming from Nilang Mehta, who acts as co-manager. The process boasts a distinct value bias, at odds with a number of competitors who tend to have a greater bias toward quality and growth. This contrarian outlook delivers a portfolio that can have little in common with both peers and the index. As a result, returns have been volatile–meaning either feast or famine for investors, with a higher level of associated risk. A long-tenured manager and willingness to remain true to process are positives but not enough to keep our conviction in a highly competitive Indian equity peer group.

— Mark Laidlaw, Senior Analyst, Manager Research


4. JPMorgan Japan (Yen) (acc) – JPY

Initiated coverage with a Neutral rating. Tokyo-based lead portfolio manager Nicholas Weindling has managed the fund since 1 December 2007. He has 13 years of investment experience and joined JPMorgan in 2006. He is supported by co-managers Shoichi Mizusawa and Miyako Urabe, who have 23 and seven years of investment experience, respectively. The fund seeks to invest in quality growth companies in an unconstrained, bottom-up manner. While long-term performance of the fund has been strong, the majority of the outperformance is skewed toward years after the portfolio’s repositioning in late 2012. Although Weindling offers potential and the investment process is sensible, we need time to see if he is able to execute the process and deliver strong returns consistently.

— Don Yew, Analyst, Manager Research 


5. Schroder Asian Asset Income HKD A Acc

Initiated coverage with a Neutral rating. Patrick Brenner became the fund’s lead portfolio manager and asset allocator in August 2015 and has delivered promising returns on this fund and on his other multi-asset funds. While we are optimistic about his appointment, we would like him to gain more Asia-specific experience and build his track record here. He is responsible for asset-allocation decisions and  gives full discretion to the respective investment teams in managing the underlying equity and fixed-income portfolios. The well-structured asset-allocation process, as well as the underlying investment teams, have been in place since the fund’s launch and have produced a stellar long-term track record. Nonetheless, we need more time to build conviction in Brenner’s process execution and believe a Neutral rating is fitting at this time.

Germaine Share, Senior Analyst, Manager Research


6. Schroder ISF Japanese Opp A Inc

Initiated coverage with a Bronze rating. Tokyo-based portfolio manager Ken Maeda has managed the fund since 1 December 2006 and has 19 years of investment experience in Japanese equities. He is supported by a large 12-member analyst team with 17 years of investment experience on average. The fund changed its strategy to allow for greater flexibility to invest across large- and small-cap companies, and replaced its benchmark from FTSE Japan to TOPIX on 2 April 2012. The strategy follows a buy-and-hold approach and seeks significantly undervalued companies relative to their long term earnings growth prospects. Since changing its strategy, the fund has delivered stellar risk-adjusted returns. Much of our conviction lies with Maeda, who demonstrated a keen understanding of portfolio companies and has applied the same strategy on the Schroder Japan Fund since May 2004, delivering excellent returns. We therefore think that Schroder ISF Japanese Opportunities is an attractive choice for investors seeking exposure to Japanese equities.

— Don Yew, Analyst, Manager Research

Part of the Mark Allen Group.