We initiate coverage of Barings Global High Yield Bond with a Morningstar Medalist Rating of Bronze for its clean I USD Acc share class. Other share classes range from Neutral to Silver depending on their respective fees. Craig Abouchar and Scott Roth are the lead portfolio managers. Both boast nearly three decades of investment experience. We appreciate their complementary skillsets as Abouchar focuses on European-domiciled positions and Roth on US-domiciled ones. The strategy also has three comanagers, Sean Feeley (comanager since inception in 2012, focus on US), Chris Sawyer (since 2016, Chair of the European allocation committee) and Chris Ellis (comanager since 2021, focus on Europe). The portfolio managers have extensive experience in working together as part of the sizeable high yield team, where they are supported by 31 high yield credit research analysts, split by region and sector. The experience of the portfolio management team, their complementary skillsets, and the size and depth of the credit research team contribute to a People Pillar Rating of Above Average. The strategy follows a bottom-up oriented process. Credit selection is driven by two investment committees, one for US high yield and one for European high yield, which both meet daily. It is benchmark-agnostic and can have significant overweights and underweights in terms of sector and rating category allocations. Duration is not an active source of alpha and is kept within a +/-0.5 years band compared to the benchmark. Over the years the team has applied its well-defined and team-oriented investment process in a disciplined manner, and has achieved very compelling absolute and risk-adjusted returns since its 2012 inception. We therefore initiate the Process Pillar Rating at Above Average.
Despite being a relatively new offering, Bennbridge ICAV – Global Emerging Markets Equity earns our highest conviction, driven by our high regard for the investment team and process that it applied in previous shops. Glen Finegan set up the firm in 2017, with most of the eight-strong investment team having worked together previously at Janus Henderson. We have high regard for Finegan’s investing prowess, demonstrated by his track record of delivering superior risk-adjusted returns above the benchmark with a high degree of consistency over his investing career. He has applied a consistent investment process since 2008, first at Stewart Investors and then at Janus Henderson from 2015 to 2019. Nicholas Cowley is the key backup, having previously worked with Finegan at Janus Henderson. Michael Cahoon and Stephen Deane are the senior members of the team and are also skilled operators. The investment process is established and tested, with a preference for founder/family-led businesses that have strong alignment with shareholder interests. The investment style is quality-at-a-reasonable-price, and this strategy can invest down the market-cap spectrum with a limit of 20% in small-cap emerging-markets stocks. Idea generation and past experience narrow the investable universe into a fully researched watchlist of around 400 companies. The Bennbridge ICAV Emerging Markets Equity funds commenced in April 2022, but Finegan’s long-term track record highlights the quality focus, with an attractive risk/reward profile and good alpha generation over time. Overall, we think that it possesses the right ingredients to earn our highest conviction in delivering alpha in the future, and we are confident this new boutique backed by Bennbridge has the foundations for long-term investment success.
Shamir Popat
We initiate coverage of the Blackrock UK Income fund, with the Process pillar rated as Average and the People pillar rated as Above average. We have a positive opinion on co-managers Adam Avigdori and David Goldman, and believe they are amply served by the nine-strong UK companies team and broader fundamental equities team at Blackrock. The process, meanwhile, was refocused in 2013 to emphasise free cash flow as well as a tightening up of the sell discipline, and the research process aims to identify companies with sustainable and attractive fundamentals, resulting in somewhat of a quality bias to the portfolio. Since this refocusing, we have seen solid execution, although with a few mistakes over recent years, a rating of Average seems warranted.
Michael Born
We initiate coverage of MFS Inv Global Value with a Morningstar Medalist Rating of Silver across all share classes. Comanager Steven Gorham has run this fund since its inception in May 2014. He has been with MFS for over three decades and provides a steady, experienced presence on the fund. Gorham collaborates with Johnathan Munko, a former MFS equity analyst who covered financial stocks, who joined the management team at the end of 2020 on the Canadian vehicle. The extensive experience from manager Steven Gorham, combined with MFS’ strong global analyst network, earns MFS Global Value an Above Average People rating. Comanagers Gorham and Munko take a three-pronged approach to investing. They look for companies that fit one of three buckets: those with low expectations (that is, cheap valuations), high-quality franchises that generate an above-average return on capital, and turnaround stories. This long-term, patient approach to buying relatively cheap companies with durable business models creates a robust portfolio, earning this strategy an Above Average Process rating. MFS Inv Global Value benefits from experienced managers and their consistent execution of a nuanced philosophy. Their approach looks for high-quality stocks, so investors should expect a blend of traditional value with some growthier names, but the emphasis on holding durable businesses should bear fruit in down markets.
Michael Dobson
We initiate coverage of the strategy with both People and Process ratings at High and a resulting Morningstar Medalist Rating of Gold. Lead manager Andrew Balls has a good deal of experience running global and European mandates, and the vast investment team, including veteran comanagers Sachin Gupta and Lorenzo Pagani, is well equipped to cover rates, currencies, corporates, and structured credit. The managers’ significant experience, the stability of the key contributors, and broad support from across Pimco’s organisation support a High People Pillar rating. Pimco’s top-down macroeconomic views guide the strategy’s broad contours. Within the scope of those themes, Balls and his team consider relative valuations to determine sector, country, and yield-curve positioning. The strategy benefits from a wide variety of resources and draws on teams that have demonstrated a clear edge over time, supporting a High Process rating. Since lead manager Balls took over in October 2014 through September 2022, the fund’s Institutional shares have largely outpaced both the category average and the benchmark index, while keeping volatility in check. All told, this team is well-equipped to take advantage of the strategy’s flexibility over the long haul.
Mike Mulach
The highly regarded and very knowledgeable investor Thiemo Lang moved to Polar Capital from Robeco in September 2021 and was accompanied by three well-experienced colleagues. He is one of the most seasoned managers within the sector equity alternative energy category, boasting more than two decades of relevant experience, including a successful stint of 14 years at RobecoSAM Smart Energy. Lang and his team apply a similar approach to the one employed at Robeco. It relies on a well-defined and structured process that has been time-tested and very skilfully executed by Lang at his previous employer. The approach focuses on bottom-up selection of quality-growth companies that trade at reasonable valuations and provide a solution that enables the decarbonisation and thereby electrification of the global energy sector. We initiate coverage with People and Process Pillar ratings of Above Average, which leads to Morningstar Medalist Ratings of Silver across all share classes.
Ronald van Genderen, CFA
We initiate coverage of the strategy with both People and Process ratings at Above Average and a resulting Morningstar Medalist Rating of Bronze for its clean (M Acc) share class. The strategy is in the capable hands of Paola Binns, experienced portfolio manager who joined Royal London Asset Management in 2007 and has led here since its inception in 2013. As Head of Sterling Credit, she oversees a relatively tight-knit team of portfolio managers which operates in a highly collegiate way. Binns also leverages on a growing but still relatively narrow credit analyst team, led by Martin Foden, as well as the firm’s broader fixed-income resources. The investment process is centred on bottom-up security selection, or developing a deep understanding of the covenant, structure and security of a bond as well as its more fundamental corporate characteristics to identify potential mispricings. This philosophy was established by Jonathan Platt in the past, and shared by the manager team through the years. As for other offerings within the Sterling credit range, this results in some distinguishing features, including a bias to secured bonds (property debentures, social housing, RMBS, CMBS) and structured credit, as well as the ability to use its high yield allocation tactically. Although this approach could lead to short-term performance deviations, it has rewarded investors over time with strong risk-adjusted returns since inception which compare favourably with both active peers and passive options in the space.
Giovanni Cafaro
PineBridge Acorns of Asia Balanced benefits from a talented Asia small- and mid-cap equity manager and a seasoned Singapore bond manager, who have both accumulated impressive long-term track records. The supporting investment teams are experienced and adequately resourced. Meanwhile, increased confidence in this strategy’s differentiated setup and the managers’ solid execution of the well-codified investment processes support an upgrade of the Process rating to Above Average from Average. The Morningstar Medalist Rating of the strategy is upgraded to Bronze from Neutral.
Samir Hui
Despite the risks that come with this benchmark-agnostic approach and the strategy’s recent performance struggles, investors should benefit from a stable and experienced management team that stays true to its differentiated and patient approach. While we have confirmed the strategy’s Above Average People and Process ratings, the firm plans to scrap the performance fee on this fund, which should boost net-of-fees returns for investors over the cycle. This has resulted in the upgrade of the Morningstar Medalist Rating to Silver from Bronze for the clean C share class.
Francesco Paganelli, CFA
T. Rowe Price Emerging Markets Bond’s new manager is still settling in, but process enhancements have proven their edge, earning an upgrade to an Above Average Process Pillar rating. Samy Muaddi took over the lead role here in July 2021, and while it’s still early days for his tenure, he can count on a large and experienced team of sovereign and corporate emerging-markets analysts. Under its former management, this strategy struggled with its risk control approach. New lead manager Samy Muaddi acknowledged this, and implemented an enhanced risk-monitoring process, as well as a more stringent approach to position sizing, which has been beneficial so far. With an upgraded Process pillar rating, the fund’s clean Q share class earns an upgrade to Bronze, from Neutral.
Maria Dobrescu
This strategy rests on solid foundations with an experienced manager and solid bottom-up investment process. Per Wehrmann has been the lead portfolio manager of this strategy since 2006 and boasts more than 20 years’ experience in European high-yield bonds, both as an analyst and as a portfolio manager. The team backing him has seen some turnover in recent years but retains our confidence overall. The team’s bottom-up issuer analysis drives positioning, with a focus on finding companies with capable management teams that are well positioned to increase their free cash flow. Although we retain both the People and Process Pillar ratings at Above Average, rating changes among rivals mean that the fund’s Morningstar Medalist Rating gets a downgrade to Neutral from Bronze for its clean FC share class. Other share classes are rated Silver to Neutral.
Thomas De fauw
Our conviction in the team running Vontobel Asia ex Japan has eroded. Matthew Benkendorf took the reins of this group after the departure of longtime manager Rajiv Jain in 2016 and introduced a more collegial and inclusive approach, including a revised incentive structure; the appointment of a director of research to coordinate analysts’ work; and the promotion of several long-standing members to portfolio manager. This team runs strategies across different geographies (US, global, emerging markets, Asia ex-Japan, Europe) and remains stable, sizable, and experienced, but this hasn’t translated into superior results in the competitive quality growth investing space. The team has proved more successful in some of its strategies, such as international (ex-US) equity, but that has not been enough to stand out. Inconsistent execution across its charges lead to a People Pillar rating downgrade to Average from Above Average. The Process Pillar rating is maintained at Above Average. Several share classes are downgraded to Neutral from Bronze, including the clean N USD share class, while only the G Acc share class maintains its Bronze rating.
Ronald van Genderen, CFA
Fidelity announced that effective January 1, 2024, Eugene Philalithis will transition out of the strategy and be replaced by Talib Sheikh as lead portfolio manager. Philalithis has been the lead portfolio manager on the strategy since March 2013 and was promoted to head the European and UK multi-asset team in early 2020. After nearly 30 years in the industry, Philalithis will retire from his day-to-day responsibilities at the end of March 2024 but is set to take up a role as a senior adviser at the firm later in 2024. The upcoming retirement of Philalithis from portfolio management is a blow to the team, and we need more time to build conviction in Sheikh as lead manager on this multi-asset income fund. As a result, we have downgraded the People Pillar rating to Average while maintaining the Process Pillar rating at Above Average. The strategy was previously placed Under Review.
Thomas De fauw
GAM Multibond Local Emerging Bond has been rerated after being placed under review due to issues at parent level, which caused Morningstar to downgrade the parent rating to Low. The accumulated challenges at GAM had a ripple effect on this compact emerging-markets debt team and despite the appeal its veteran lead manager, ongoing team turnover and workload concerns limit our conviction here to an Average People score. We note that Paul McNamara has led this emerging-markets local-currency team for more than two decades, bringing considerable continuity and expertise to this strategy. However, the loss of comanager Denise Prime, who joined the roster in 2010 and retired in August 2023, was another blow in a string of departures. Still, the continued support of McNamara’s two experienced deputies brings some comfort. Macro strategist Michael Biggs and currency and inflation specialist Markus Heider have been with McNamara since 2013 and 2018, respectively, and each boasts over 20 years of experience. Both were formally named as comanagers on this strategy in August 2023 following Prime’s retirement. The team also continues to ply its high-conviction approach, that is appealing for its flexibility, and generally offers better downside protection than peers during risk-off periods, earning an Above Average Process score. The strategy was previously placed Under Review.
Jeana Marie Doubell
We reinstate a positive view here, supported by the carefully executed succession plan here, and maintain both the People and Process pillar ratings at Above Average. We had briefly placed the strategies Under Review upon the news that long-standing portfolio manager John Bennett is retiring at the end of August 2024. The announcement of Bennett’s impending retirement did not come as a big surprise. He is a true veteran and, under our forward-looking ratings framework, we had discounted his long-term involvement. In that sense, there has been little by way of major change in our view. While there will unarguably be a loss of experience overall, we are highly satisfied with the long-term transition plans and believe Bennett will leave the team in good shape. His successors Tom O’Hara and Tom Lemaigre were handpicked by him back in 2018 and are highly talented and insightful investors in their own right. They share the same investing DNA and are philosophically aligned. Notably, the duo had increasingly taken the mantle in recent years. This leads to the Medalist Rating of Silver for the clean share classes. The strategy was previously placed Under Review.
Daniel Haydon
Lead manager Clare Hart plans to retire from JPMorgan US Value and the firm in fall 2024, which drives the People Pillar rating down to Above Average from High. In her 19 years as lead manager, Hart built the team, refined the approach, and led the execution; her departure will be a material loss of talent. Similar to the larger equity-income fund (closed to new investors), this strategy rests upon a classic value philosophy: a pool of well-run but undervalued companies with consistent earnings and disciplined capital allocation should beat the market. The approach here is sensible and effective, supporting an Above Average Process rating. While Hart has been essential to the strategy’s strong track record since 2004, it is well-prepared to succeed after she retires. Until then, she remains a portfolio manager alongside Andrew Brandon and David Silberman. The departure of a highly successful lead manager often augurs middling future results, but the veteran team and battle-tested approach here will probably remain a cut above. The strategy was previously placed Under Review.
Todd Trubey
UBS MSCI USA Quality ESG ETF changed its benchmark to the MSCI USA Quality ESG Low Carbon Index from the MSCI USA Quality Index on July 31, 2023. Consequently, we have downgraded the fund’s Process Pillar to Average from Above Average mainly because the index doesn’t have a long track record and also because it is highly concentrated in the technology sector. The strategy was previously placed Under Review.
Monika Calay
On October 11, 2023, Allianz announced that Thorsten Winkelmann and four of his team members, including Robert Hofmann, Marcus Morris-Eyton, Darina Valkova, and Nicolas Goncalves, will be leaving the firm. Losing five of its 12 members, including its highly regarded team head, is a considerable blow to the Allianz Equity Growth team. The departures also triggered a raft of changes in portfolio management positions. On Allianz Continental European, lead manager Morris-Eyton is replaced by co-lead managers Giovanni Trombello and Julian Bishop, while deputy manager Valkova is succeeded by Andreas Hildebrand. Meanwhile, lead manager Hildebrand is accompanied by comanager Trombello on Allianz Euroland Equity Growth, and Valkova is not replaced in her capacity as deputy manager. Allianz Europe Equity Growth loses Winkelmann and Hofmann as co-lead managers and Morris Eyton as deputy-manager; these responsibilities are absorbed by Hildebrand and Trombello, while Schneider and James Ashworth will act as deputy managers. Trombello remains at the helm on Allianz Europe Equity Growth Select, but Winkelmann is succeeded by Hildebrand, who previously was the deputy manager on the strategy, a role that is taken over by Schneider. Finally, Allianz Global Equity Growth will be managed by Schneider and Tobias Kohls, with Hildebrand maintaining his deputy responsibilities here. The appointments include two new team members. Bishop joined Allianz in November 2022 as a co-lead manager for the Allianz Global Equity Dividend strategy. He brings more than 25 years of investment experience, having worked at Tesco Pension Investment, Sarasin and Partners, and Insight Investment. The second new team member is Ashworth, who joined as a senior analyst covering the US financials sector in November 2022. Winkelmann had built a cohesive team that was characterized by a strong investment culture. His departure and that of four of his team members is a massive loss. While the remaining team still consists of several seasoned members, including two experienced joiners, it is unlikely that they will bring the same level of investment acumen right away. Until we speak to them to reassess our opinion, we are placing the ratings on the covered strategies Under Review. Previously, the People Pillar ratings were Above Average for Allianz Continental European, Allianz Euroland Equity Growth, Allianz Europe Equity Growth, and Allianz Europe Equity Growth Select, while this was Average for Allianz Global Equity Growth. The Process Pillar ratings stood at Above Average across all strategies.
Ronald van Genderen, CFA
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