New Ratings
Lyxor MSCI Europe ESG Leaders (ESGL) – Silver
Dimitar Boyadzhiev
Lyxor MSCI Europe ESG Leaders offers a low-cost and sensible approach to gain exposure to companies from developed Europe countries with a strong focus on environmental, social, and governance factors. At 0.25%, this fund's ongoing charge is very competitive against both active and passive peers. The fund has a short record, but we expect that its portfolio will closely approximate the long-term return of the MSCI Europe Index. All in all, we have a positive view of the strategy as defined by the index. We have awarded the fund a Morningstar Analyst Rating of Silver.
Upgrades
iShares Edge S&P 500 Min Vol (SPMV) – Gold from Silver
Briegel Leitao
IShares S&P 500 Min Vol offers a portfolio of emerging-markets stocks that have been selected to deliver the lowest possible variance of returns. The underlying index strategy starts with the stocks in the well-known S&P 500 index and then leverages the Northfield Portfolio Optimiser to create the optimal minimum volatility portfolio. In doing so, the fund aims to make a smoother ride of emerging markets by lowering volatility and improving downside risk. The combination of risk-mitigating measures and low fees improves the strategy’s chances of delivering returns in excess of the Morningstar Category average and underpins its Morningstar Analyst Rating of Gold.
There is a lot of historical evidence supporting a minimum-volatility approach. The strategy has proved its effectiveness, especially during a volatile 2018 and more recently in the turbulent first half of 2020, when the fund added value by controlling losses, further improving its track record and outperforming not only category peers but also its parent market-cap index. It is among the cheapest risk-reducing emerging-markets exchange-traded funds, and the ongoing charge of 0.40% also places the fund attractively against active peers that typically charge between 1.00% and 2.00%.
Downgrades
BGF European Equity Income – Neutral from Bronze
Jeffrey Schumacher
This fund is in the capable hands of a talented manager backed by a large team that is recovering from an instable period, while effective execution of a proven and dynamic approach can give it an edge. We therefore retain the People Pillar score of Average and Process Pillar score of Above Average. Under our enhanced ratings framework, which puts more focus on fees and expected benchmark-relative performance, the strategy’s Morningstar Analyst Rating for its clean D2 EUR share class and more expensive classes drop to Neutral, while its cheapest share classes retain a Bronze rating.
BGF Euro-Markets – Neutral from Bronze
Jeffrey Schumacher
This fund is in the capable hands of a complementary duo backed by a large team that is recovering from an instable period, while effective execution of a proven and dynamic approach can give it an edge. We therefore retain the People Pillar score of Average and Process Pillar score of Above Average. Under our enhanced ratings framework, which puts more focus on fees and expected benchmarkrelative performance, the strategy’s Morningstar Analyst Rating for its clean D2 share class and more expensive classes drop to Neutral, while its cheapest share classes retain a Bronze rating.
Fidelity Asian High Yield – Bronze from Silver
Patrick Ge
Fidelity announced in May 2020 that lead manager and head of Asian fixed income Bryan Collins will leave the firm on 30 June 2020, though he'll be available as an advisor until the end of 2020 to smooth out the transition of responsibilities. Collins had led Fidelity Asian High Yield since 2009 and was one of our favorite fixed-income managers, so his departure significantly reduces our conviction here.
Taking over the strategy as joint lead managers effective 1 July are Tae-Ho Ryu and Terrence Pang, who have comanaged the strategy since February 2020 alongside Collins. Ryu, sporting 13 years of investment experience, was a senior trader, while Pang, with seven years of investment experience, was a credit analyst. While the two showcased their passion and offered good insights at our May 2020 review, they’re fresh to portfolio management and are unproven money managers. As such, Fidelity Asian High Yield’s People rating was lowered to Average from High, and the fund's Morningstar Analyst Rating was downgraded to Bronze from Silver for its cheaper share classes, while most share classes, including its clean share class, fall to Neutral.
Fidelity China RMB Bond – Neutral from Bronze
Patrick Ge
Triggered by the announcement of head of Asia fixed income Bryan Collins' 30 June 2020 departure, we learned in May 2020 that Morgan Lau had replaced Collins as the lead manager of Fidelity China RMB Bond on 1 Nov 2019, while Collins stepped down to become the comanager. This manager change was not communicated to us at the time, and we have updated the strategy's Morningstar Analyst Rating upon receiving this news to better reflect our opinion of current leadership. Lau joined Fidelity in 2018 and brings 12 years of fixed-income investment experience. He was named comanager on the strategy in January 2019 alongside Collins, and he provides some continuity. While Lau came across as an articulate and knowledgeable China bond investor, this is the first time he's taken the lead on a strategy, and he remains unproven as a key decision-maker.
Furthermore, the investment team will miss the valuable input and guidance from former team head Collins, who had managed the strategy since its 2011 inception and was one of our favourite fixed-income managers. The investment process remains intact but continues to evolve. Lau plans to incorporate an allocation model that would assist with portfolio risk budgeting, with the aim to position this strategy to be more volatility-conscious, focusing on the information ratio as a measure of success. As such, Fidelity China RMB Bond's People rating was lowered to Average from High, while the Process rating was maintained at Average. The Analyst Rating was downgraded to Neutral from Bronze across all share classes.
IVA Global – Bronze from Silver
Matias Möttölä
The Morningstar Analyst Rating of IVA Global has been lowered to Bronze for the I and W share classes (from a previous Silver), while the pricier A share classes are now rated Neutral. We continue have a positive opinion of IVA’s portfolio management team led by Charles de Vaulx and Charles de Lardemelle, the latter of whom has taken over this fund as the sole lead manager. However, we have some doubts about their reluctance to lower the fund’s high cash positions even in large market drawdowns, which has also led the fund to fall behind its average peer in the USD aggressive allocation Morningstar Category.
Note: under the Morningstar methodology different share classes of funds may have different ratings
