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PineBridge Small Cap Fund Downgraded

Its impressive risk-return profile stands out, but Morningstar analysts see snares in its swelling assets. 

Kate Lin, CAIA 20 July, 2021 | 10:07
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PineBridge Asia ex Japan Small Cap has done a good job in capitalizing on Asian smaller companies that lead the way for quality growth, according to Morningstar analysts. For the trailing three and five years, the fund returned 12.8% and 14.2%, respectively, outperforming both the Morningstar Category average and Category benchmark index.

While growth is a core element the manager looks for in a stock, valuation is an equally important metric. With this discipline, the portfolio manager Elizabeth Soon is able to identify companies trading at reasonable price and delivering competitive upside. An attractive risk-return profile has attracted growing investor interest and sustained influx of investor money. The fund reached US$ 2.5 billion as of the end of June, nearly doubling in size since the beginning of 2020.

Morningstar manager research analyst Samuel Lo says, “We lack comfort in how the firm is managing capacity.” Thus, two share classes of PineBridge Asia ex Japan Small Cap that are available for sale in Hong Kong have been downgraded. The overall Morningstar Analyst Rating of Class A (IE00B12V2V27) has been downgraded to Neutral from Bronze, and cheaper Class Y (IE0003895277) has been downgraded to Bronze from Silver.

The effects of incoming investor money have proved influential. First, to stay invested, a bloated asset base in the fund propelled Soon to look for ideas beyond the highest-conviction opportunity set, expanding the number of portfolio holdings to 85 from 65. Second, Lo says the portfolio’s liquidity profile has tailed off over this period.

To keep asset growth under control, Lo says the fund was put under a soft closure since May 2021. Meanwhile, she flags underlying risks that follow as Pinebridge is launching an Australia-domiciled fund, which will be managed by Soon adopting the same Asian small-cap strategy as its equivalent, which is domiciled in Ireland.

“We have seen no clear restrictions regarding the level of maximum ownership in, nor liquidity requirements for, a single company. As such, it may become more challenging for the manager to add value in the small-cap space and maintain portfolio characteristics going forward,” says Lo, who lowered the fund’s Process rating to Average from Above Average and kept the People rating at Above Average in July 2021. 


Other Changes

Aberdeen Standard SICAV I - Indian Equity continues to benefit from a solid team of five portfolio managers who manage it collegially using a time-tested quality-focused investment approach.

However, owing to changes in the competitive landscape within the India equity Morningstar Category, the Morningstar Analyst Rating for a number of share classes, including the X Acc USD clean share class, have been downgraded to Bronze from Silver, while the other share classes retained their Silver or Bronze ratings based on their fees.

– Samuel Lo


The Fidelity Emerging Markets strategy boasts an experienced portfolio manager who has managed this strategy since July 2009, supported by four regional managers and 47 emerging-markets research analysts.

The Morningstar Analyst Rating for the clean Y share class of the Lux-domiciled vehicle has been upgraded from Bronze to Silver. The upgrade is driven by an upgrade of the Process Pillar to High from Above Average.

The approach is robust and benefits from three layers of due diligence on each stock, providing exposure to Fidelity’s best global emerging-markets equity ideas. The disciplined approach has been well-executed over time, leading to consistent long-term outperformance.

– Lena Tsymbaluk


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About Author

Kate Lin, CAIA

Kate Lin, CAIA  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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