Morningstar Fund Ratings Round-up

In this round-up, we unveil the latest upgrades and downgrades from Morningstar's analysts.

Kate Lin 28 April, 2022 | 10:26
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In April, Morningstar analysts downgraded five funds, of which two strategies focused on Asia / China equities. Here are the details.

FSSA Asian Equity Plus Downgraded to Silver

FSSA Asian Equity Plus continues to be backed by a talented manager, a supporting cast with an outstanding investment culture, and a time-tested investment process. While we reiterate both People and Process Pillar ratings at High, changes in the competitive landscape within the Asia-Pacific ex-Japan Equity Morningstar Category have prompted the downgrade of the Morningstar Analyst Ratings for the Ireland-domiciled vehicle’s share classes III to Silver from Gold. The other share classes maintain their Silver ratings.

- Germaine Share

JPMorgan China Pioneer A-Share Downgraded to Bronze

JPMorgan China Pioneer A-Share continues to benefit from a capable management team, broad analytical resources, and a well-structured investment approach. We reiterate our conviction in the strategy and maintain both the People and Process ratings at Above Average. However, the increased competition from lower-priced rivals in the China Equity – A Shares Morningstar Category has led to the Morningstar Analyst Rating for this Hong Kong unit trust to drop to Bronze from Silver.

- Claire Liang, CFA

Name

ISIN

Fee

Previous Rating

Updated Rating

Total Return (YTD)

Total Annualized Return (3 Yr)

Total Annualized Return (5 Yr)

FSSA Asian Eq Plus III GBP Inc

IE00B97LZ362

1.04

Gold

Silver

-15.52

4.35

7.45

 

FSSA Asian Eq Plus III USD Acc

IE00B4WZJB45

1.03

Gold

Silver

-14.72

4.64

7.57

 

FSSA Asian Eq Plus III USD Inc

IE00B97MK230

1.04

Gold

Silver

-14.72

4.64

7.60

 

JPMorgan China Pioneer A-Share (acc) USD

HK0000055621

1.87

Silver

Bronze

-29.93

8.38

10.54

 

 

Legg Mason Royce US Small Cap Opportunity Now Negative

Still dealing with the repercussions of a major management change, the Morningstar Analyst Rating for the clean X share class for Legg Mason Royce US Small Cap Opportunity was downgraded from Neutral to Negative. Other share classes range from Neutral to Negative, depending on fees. It's been a year since Royce Investment Partners recalled former longtime lead manager and approach architect Boniface "Buzz" Zaino to train a new stock-picking crew after the previous team Zaino had mentored left for a competitor in April 2021. While Zaino returned to senior advisor status in October 2021, it's still not clear the current managers will execute the strategy as well as Zaino and his immediate successor did, resulting in a reinstatement of the strategy’s Below Average People rating. Zaino stepped back from day-to-day operations, leaving the team with a tricky contrarian approach that may prove hard to master. It entails looking for statistically cheap stocks that are under clouds but showing signs of improvement. The managers here are still proving themselves with this strategy's unique but volatile approach. That drops its Process rating to Average from Above Average.

- Dan Culloton

 

Stewart Investors Worldwide Leaders Sustainability Downgraded to Silver

Stewart Investors Worldwide Leaders Sustainability's unique, risk-aware approach makes it a strong choice for global equities, although our conviction in the team is slightly tempered by upheaval in the broader Stewart Investors Group and the lack of a singular strategy focus. The announced closure of the St Andrews Partners arm of Stewart following a strategic review is an incremental loss to the group's overall research effort. While the remaining sustainable funds group has become increasingly independent in recent years, it is relatively small, has a generalist analyst model, and its focus is spread across a range of strategies. This leads to a downgrade of the Morningstar Analyst Rating for the fund's cheaper classes, including the clean III share classes, to Silver from Gold, while its most expensive share class maintains a Silver rating.

- Ronald van Genderen, CFA

Name

ISIN

Fee

Previous Rating

Updated Rating

Total Return (YTD)

Total Annualized Return (3 Yr)

Total Annualized Return (5 Yr)

Franklin US Opportunities B(acc)USD

LU0109391945

3.11

Neutral

Negative

-22.34

9.85

12.08

Legg Mason RY US SmCp Opp A EUR Acc

IE00B19Z4C24

2.00

Neutral

Negative

-11.15

15.02

10.46

Legg Mason RY US SmCp Opp A USD Acc

IE00B19Z4B17

2.00

Neutral

Negative

-11.31

15.10

10.48

Legg Mason RY US SmCp Opp A USD Dis(A)

IE0031619046

2.00

Neutral

Negative

-11.31

15.10

10.48

Stewart Inv Wldwd Ldrs Sstby III USD Acc

IE00BK1PN152

0.70

Gold

Silver

-18.10

8.91

-

 

Stewart Inv Wldwd Ldrs Sstby IIIG USDAcc

IE0008372751

0.51

Gold

Silver

-18.06

9.26

8.55

 

 

Capital Group Global Allocation (LUX) Z Upgraded to Gold

Capital Group Global Allocation impresses with its seasoned manager team, proven approach, and a parent company that serves its investors exceptionally well. The fund remains one of our highest convictions within the category. Although we retain both the People and Process Pillar scores at respectively High and Above Average, rating changes among rivals in its category mean that the fund’s Morningstar Analyst Rating gets an upgrade from Silver to Gold for its Z share class, which is for sale in Hong Kong.

- Thomas De fauw

Name

ISIN

Fee

Previous Rating

Updated Rating

Total Return (YTD)

Total Annualized Return (3 Yr)

Total Annualized Return (5 Yr)

Capital Group Glob Alloc (LUX) Z

LU1006079997

0.89

Silver

Gold

-10.14

6.25

6.19

Capital Group Glob Alloc (LUX) Zd

LU1006080573

0.89

Silver

Gold

-10.16

6.27

6.18

Capital Group Glob Alloc (LUX) Zgd

LU1006080904

0.90

Silver

Gold

-10.16

6.26

6.19

 

Two New Ratings

AllianceBernstein Emerging Markets Growth

AllianceBernstein Emerging Markets Growth’s personnel turnover and workload concerns warrant a Morningstar Analyst Rating of Negative for its most-expensive share classes, while its cheaper shares are rated Neutral, including the clean S1 USD share class. On Feb. 1, 2022, CIO of emerging markets growth team and lead manager Laurent Saltiel abruptly left the firm, leaving Sergey Davalchenko and Jia Zhang to run the strategy. The team’s tech analyst also left in 2021, leaving just two analysts to support the managers. This raises concerns around the small team of four’s workload, resulting in a People rating of Below Average. The lean team is faced with covering a vast universe of emerging market stocks that is narrowed down using a screener for companies with secular growth drivers trading at reasonable valuations. They then conduct fundamental research on companies that pass the screen, though their heavy workload raises questions about how thoroughly they can research these names, resulting in an Average Process rating.

- David Carey, Tony Thomas

 

BGF Asian High Yield

BGF Asian High Yield Bond’s impending lead manager departure and risk management concerns lead to some uncertainties regarding its prospects. Artur Piasecki, one of the team’s most senior investors, will leave the firm and step down from his lead manager responsibilities of the strategy effective 31 March 2022. As a key contributor here since its 2017 inception, his exit will be a loss. Co-manager Suanjin Tan will replace him come 1 April 2022. While experienced, we need time to gain confidence in Tan as the key decision maker, who does not have a public track record managing an Asian high yield bond fund. The strategy employs a high-conviction, benchmark agnostic investment process that marries top-down macro insights with bottom-up fundamental credit analysis. This approach has resulted in concentrated risk exposures, and while it has added value in the past, it also led to severe losses in 2021 owing to the team’s oversized bet on Chinese property developers, which points to potential risk management issues. Capacity management is another area to monitor. Given these reservations, the strategy earns People and Process pillar ratings of Average, resulting in a Morningstar Analyst Rating of Neutral across all share classes.

- Patrick Ge, CFA, Analyst

Name

ISIN

Fee

Rating

Total Return (YTD)

Total Annualized Return (3 Yr)

Total Annualized Return (5 Yr)

AB Emerging Markets Gr A EUR Acc

LU0232528306

2.00

Negative

-13.23

1.38

1.74

AB Emerging Markets Gr A HKD Acc

LU0453505090

2.00

Negative

-13.38

1.41

1.72

AB Emerging Markets Gr A SGD Acc

LU0289936097

2.00

Negative

-13.41

1.38

1.73

AB Emerging Markets Gr C EUR Acc

LU0232575133

2.45

Negative

-13.35

0.93

1.29

AB Emerging Markets Gr I EUR Acc

LU0232528728

1.20

Neutral

-12.99

2.21

2.56

AB Emerging Markets Growth A USD

LU0040709171

2.00

Negative

-13.37

1.41

1.71

AB Emerging Markets Growth B USD

LU0040709684

3.00

Negative

-13.67

0.40

0.70

AB Emerging Markets Growth C USD

LU0054846695

2.45

Negative

-13.51

0.96

1.26

AB Emerging Markets Growth I USD

LU0079455316

1.20

Neutral

-13.15

2.23

2.53

BGF Asian High Yield Bond A2 USD

LU1564328067

0.97

Neutral

-13.29

-6.36

 

BGF Asian High Yield Bond A6 USD

LU1564328141

0.92

Neutral

-13.22

-6.31

 

BGF Asian High Yield Bond D2 USD

LU1564328224

0.73

Neutral

-13.14

-5.92

 

 

 

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About Author

Kate Lin

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

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