Morningstar’s review uses a new evaluation framework that places a greater emphasis on fees and benchmark-relative performance than previously.
The 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 rating shown is for the main clean share class.
New ratings
Xtrackers ESG MSCI USA – Bronze
The ETF offers a screened portfolio of US stocks from the wider MSCI USA universe. The strategy excludes laggards on several environmental, social, and governance metrics such as carbon emissions and controversial weapons. It is attractively priced and does a good job of offering a portfolio of stocks with good ESG credentials; however, investors are exposed to a small degree of single-stock concentration risk. This limits the fund to an analyst rating of Bronze. The fund’s index, the MSCI USA ESG Leaders Low Carbon ex-Tobacco Involvement 5%, offers large- to mid-cap exposure and consists of around 250 stocks, covering about 50% of the free-float adjusted market capitalisation of the US equity market. The methodology aims to maintain similar sector weightings to the parent non-ESG screened benchmark, the MSCI USA index, so as not to introduce excessive levels of active risk with the ESG screen. However, as single stocks are uncapped, the strategy ends up heavily overweighting single stock Microsoft, unduly exposing investors to single-stock concentration risk.
Briegel Leitao
Upgrades
Candriam Biotechnology – Silver from Bronze
A team of highly qualified biotechnology experts led by one of the industry’s most seasoned investors in the field, and a proven process, give this fund an edge. We therefore retain the fund’s above average pillar scores for People and Process. Under our enhanced ratings framework, which puts more focus on fees and expected benchmark-relative performance, the strategy’s analyst rating was upgraded from Bronze to Silver for its cheapest share classes, while more expensive ones land at Bronze and Neutral.
Jeffrey Schumacher
JPMorgan China A-Share Opportunities – Silver from Neutral
The fund benefits from both a solid management duo who has demonstrated great familiarity with the China onshore market and a well-resourced supporting cast. The managers adopt a secular growth-focused approach with a quality tilt and utilize the “strategic classification” framework, which is well-structured and has proved to be effective on a number of JPMorgan’s Emerging Markets and Asia Pacific equity offerings. The managers have consistently implemented this approach since they took over the strategy in 2017, and they have successfully leveraged the Greater China analyst team’s broad China A-shares coverage to add value via bottom-up stock picks in key secular growth sectors such as healthcare and information technology over the years. This has strengthened our conviction in the process’ efficacy in China A-shares, resulting in a Process rating upgrade to above average from average. Under our enhanced ratings framework, which places a greater focus on fees and expected benchmark-relative performance, the analyst ratings of all share classes of this Hong Kong unit trust have been upgraded to Silver from Neutral.
Claire Liang
JPM Global Bond Opportunities Fund – Bronze from Neutral
The JPM Global Bond Opportunities Fund UK OEIC vehicle’s analyst rating for the C share class has being upgraded to Bronze from Neutral, while more-expensive share classes are rated Neutral. The co-managers of this strategy have delivered strong relative performance in a variety of market climates by utilizing the firm’s wide range of resources, leading to an upgrade in the Process pillar rating to above average. The strategy aims to maximise total return with a 5%-10% volatility target and affords the team considerable flexibility in investing across a variety of sectors, such as high-yield and investment-grade corporates, emerging markets, and securitised debt. For most of the time since inception, the stake in high-yield debt has ranged between 50% and 65%, which has been beneficial in a generally benign environment for corporate credit. However, the flexibility afforded has seen the team exercise sound judgment in reducing that stake when valuations appear less compelling. This provides confidence in the team’s ability to proactively reduce risk and modify exposure levels to limit drawdowns in periods of market stress.
Evangelia Gkeka
Downgrades
AXA Global High Income – Bronze from Silver
The fund offers investors exposure to very experienced portfolio managers that utilise a differentiated approach to high-yield investing. The managers invest a significant portion of the portfolio in lower-rated securities, typically holding them to maturity. By design, the portfolio also often incorporates a core of shorter-dated bonds to mitigate volatility from higher-risk issuers. This barbell approach differentiates the strategy from peers. Detailed fundamental credit analysis is at the epicentre of the process. The focus is on companies with improving credit trends, stable business models, and predictable cash flows. People and Process pillars continue to be rated above average. Under our enhanced ratings framework, which places a greater focus on fees and benchmark-relative performance, the analyst rating for the strategy’s clean share class (Z Gross Acc) is lowered to Bronze from Silver, while the more expensive R share class is rated Neutral.
Evangelia Gkeka
IShares European Property Yield ETF – Neutral from Bronze
The ETF offers exposure to continental European REITs and listed real estate companies that have been screened by their one-year forecast dividend yield. Despite the word “European” in its name, the exchange-traded fund excludes UK-listed equities, which have accounted for as much as a third of the underlying market. It is important to understand that this fund will likely see periods of relative under/overperformance versus peers that hold UK listings. The fund has an ongoing charge of 0.40%, making it significantly cheaper than the median fund in the Morningstar category. That said, there are several cheaper passive peers. IShares has a seasoned passive management team befitting of the dominant ETF provider in Europe. The team can leverage market-leading technology while managing its funds. The exclusion of UK holdings means that it is an imperfect tool with which to access the European indirect property market. For these reasons, the fund’s analyst rating has been downgraded to Neutral from Bronze.
Kenneth Lamont
UBS MSCI USA SRI – Bronze from Silver
The ETF provides exposure to US companies that exhibit high environmental, social, and governance scores, and it has a low tracking error relative to the well-regarded MSCI USA Index. Despite its much smaller number of constituents, the MSCI USA SRI 5% Issuer Capped Index displays similar characteristics to the MSCI USA parent index. However, the fund’s relatively high fee compared with other passive peers limits its analyst rating to Bronze. The fund’s index, the MSCI USA SRI 5% Issuer Capped Index, offers large- to mid-cap exposure, covering about 25% of the free-float adjusted market capitalisation of the US equity market. The index methodology aims to maintain similar sector weightings to the parent benchmark, the MSCI USA index, with the 5% single-stock weight limit helping to ensure sufficient diversification at the stock level.
Briegel Leitao
Under Review
Fidelity China RMB- Patrick Ge
Fidelity Asian High Yield – Patrick Ge
Jupiter European Opportunities- Mathieu Caquineau
