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6 of the Biggest Fund Rating Upgrades

Schroders’ Asia and emerging markets equity funds lead the way.

Kate Lin, CAIA 19 August, 2021 | 16:43
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The Morningstar Analyst Rating for Funds uses a forward-looking, qualitative methodology to provide assessments of a fund’s investment merits. In arriving at our ratings, the methodology underpins three pillars: People, Process, and Parent. Additional weight is given to fees.

According to Russel Kinnel, Director of Manager Research at Morningstar, the qualitative research involves talking with portfolio managers, running performance attribution data, examining portfolio changes, visiting (virtually for now) with firms' compliance teams, traders, analysts, and key executives. After this, the team distills this information into a rating.

Kinnel says: “Repeating that process over the years can lead us to change our opinion, as can events like changes to the performance profile and the fundamentals listed above. Upgrades to the ratings tend to be spurred by a subtle accumulation of favorable discoveries, while some downgrades often result from more dramatic events like manager departures and portfolio blowups.”

Here are six of the more prominent upgrades among funds for sale in Hong Kong and Singapore in the past 12 months.


Schroder Asian Growth Fund

Schroder International Selection Fund Asian Opportunities

Schroder International Selection Fund Hong Kong Equity

The three of Schroders’ equity strategies receive an upgraded People rating to High from Above Average. Their Process ratings were all reiterated at High.

The overall Morningstar Analyst Rating for Schroder Asian Growth is Gold across its share classes. Cheaper share classes of Schroder ISF Asian Opportunities and Schroder ISF Hong Kong Equity earn Morningstar Analyst Ratings of Gold, while the more expensive share classes land at Silver.

The firm’s Head of Asian Equity Investments, Toby Hudson, is the lead portfolio manager for the three mandates. Germaine Share, Hong Kong-based Director of Manager Research at Morningstar, says: “Hudson has dedicated his 28-year investment career to Schroders and has consistently impressed us with his passion for investing and well-articulated investment theses.” The strong ability of Hudson as the lead manager, a resourceful supporting team and a robust investment framework form the conviction of our research analysts.


Schroder International Selection Fund Emerging Asia

Louisa Lo, who is a lead manager for Schroder ISF Emerging Asia, is named as “one of the best in the Asia ex Japan equity Morningstar Category”, according to Share.

Morningstar raised the People rating to High from Above Average in October 2020. For the strategy’s cheaper share classes, the overall Morningstar Analyst Rating was thus upgraded to Gold from Silver, while the more expensive ones were upgraded to Silver from Bronze.

Lo’s long track record started in 2002 and has since accumulated 24 years of those investment experience at Schroders. Other than people, the fund’s approach was also one of the category’s best, earning it a Process rating of High. The quality growth-focused approach – following a framework that has been applied over multiple market cycles at Schroders – finds stocks in a rigorous and disciplined stock selection process.


The other two notable upgrades were made to PIMCO’s global bond strategy and T. Rowe Price’s global equity fund.


PIMCO GIS Global Bond Fund

PIMCO’s clear edge in extensive resources and top-down views as a contour continues to anchor the rating of the US$ 14.9 billion fund. The strategy earns a Morningstar Analyst Rating of Gold on its cheaper share classes, while the more expensive shares are rated Silver and Bronze respectively.


T. Rowe Price Funds SICAV - Global Growth Equity Fund

Among 1,300 funds in the Global Large-Cap Growth Equity category, the T. Rowe Price Fund is a top strategy, with a High rating in all three pillars. Its Morningstar Analyst Rating was upgraded in March 2021 to Gold from Silver for all share classes, except the most expensive one, which retains a Silver rating.

Commenting on the rating upgrades, Ronald van Genderen, Analyst at Morningstar, cited a high degree of confidence in the lead manager’s ability to steer this strategy through various environments and have more comfort over the strategy’s high stock turnover and growth tilts. Compared to other similar equity strategies, the level of diversification and allocation to emerging markets are two merits of the fund. While a growth tilt results in a portfolio holding names trading high price multiples, the manager Scott Berg has been keeping risks in check. Holding around 150 stocks, the portfolio uses the level of diversification as one of the key risk management tools. The fund’s meaningful overweight position in emerging markets helps the overall return. In 2020, the fund gained 31.5%, outperforming both the category benchmark’s 22.6% gain and average peer’s 17.1% return.




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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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