The April departure of lead manager Andrew Swan “erodes our conviction” in the $1.9bn BlackRock GF Asian Dragon Fund, Morningstar said in a recent client note.
The cheapest share classes have been taken down to a Neutral (forward-looking) analyst rating from Bronze.
The more expensive share classes are downgraded to Negative.
Other key personnel have also left the firm in recent years, “eroding confidence in the overall group”, Morningstar said.
Stephen Andrews, who joined Blackrock in 2017, is the new lead manager of the fund.
“While Andrews has 22 years of experience, most of that was on the sellside, most recently at Deutsche Bank covering Asian financials, and he has more to prove as a money manager,” wrote Andrew Daniels, senior analyst at Morningstar.
“His first portfolio management role came in April 2018, when he took over the dividend-oriented BGF Emerging Markets Equity Income, which delivered relatively solid returns through March 2020, but he will focus on the Asian Dragon strategy going forward.”
The report also mentioned that at an April meeting, the fund’s co-manager Alethea Leung “provided most of the stock-specific insight, highlighting the extemporaneous nature of Swan’s departure and raising doubts that Andrews, a relatively inexperienced portfolio manager, is ready for his new role”.
Morningstar said the new managers will not change the fund’s style-agnostic strategy, which combines top-down and bottom-up stock picking.
“While the approach is reasonable, it relies on manager intuition and experience, and given Andrews’ limited experience it’s not clear he can replicate Swan’s success.”
The Asian Dragon Fund grew in popularity during Swan’s tenure as lead manager, and it accumulated the ninth largest AUM of 113 funds in the Asia ex-Japan equity category in Hong Kong, FE Fundinfo data shows.
For the eight calendar years from 2012 – 2019, the fund outperformed both the category and benchmark six of those years.
However, it struggled in more recent periods, specifically in terms of three-year cumulative returns.
For the trailing three years to 14 May, almost 20% of the funds in the category reported double-digit returns, led by Mirae Asset Asia Great Consumer Equity (33.65%).
Blackrock’s Asian Dragon Fund, however, returned 3.63% during the same period, less than half of its benchmark MSCI Asia ex-Japan return (7.31%).
The Asian Dragon Fund vs benchmark and category