FSSA Japan Focus benefits from a talented portfolio manager and a time-tested quality-focused investment approach. Lead manager Sophia Li has proved her investment skills by consistently providing keen investment insights and achieving solid results since the strategy’s inception in 2015. While the team’s Japan-dedicated resource is less ample than some of our preferred Japanese equity teams and the recent turnover is less than ideal, the strategy also draws from the broader FSSA team, which we believe has one of the best investment cultures in the region and provides adequate support. The strategy follows the same investment process that has been successfully employed by the FSSA investment team for more than two decades, emphasizing the quality of the founders or the management teams. We are extending coverage of the strategy to its UK-domiciled vehicle, which earns a Morningstar Analyst Rating of Bronze across all share classes, with both People and Process ratings at Above Average.
Samuel Lo, CFA
Janus Henderson Global Multi-Strategy H2 – Bronze
Janus Henderson Global Multi-Strategy comprises various investment strategies bounded by permanent portfolio protection. It is run by the Diversified Alternatives unit at Janus Henderson, a team built up from various corporate acquisitions. The team is one of the most experienced in its Morningstar Category with two decades of average experience developed largely on proprietary trading desks or at firms with active trading units as opposed to broad multistrategy allocators. The team is geographically dispersed across six cities and three continents, bringing full coverage to trade. The strategy’s differentiated construction and flexible capital allocation earn positive pillar ratings. Most share classes including the clean H2 share class receive a Morningstar Analyst Rating of Bronze, while the more expensive classes are rated Neutral.
Simon Scott
Upgrades
Berenberg Eurozone Focus I – Silver from Bronze
Berenberg Eurozone Focus floundered in 2022, but the qualities of this strategy remain intact. It boasts a lead manager with strong credentials, a cohesive management team, and sound investment process. Although we retain both the People and Process Pillar scores at Above Average, rating changes among rivals in its category mean that the fund’s Morningstar Analyst Rating gets an upgrade from Bronze to Silver for its clean I and IEC share class. Pricier share classes are rated Bronze or Neutral.
Natalia Wolfstetter
Cartesio Income Z – Bronze from Neutral
Cartesio’s Income strategy has several strengths, and we continue to hold the managers and firm founders Juan Bertran, Alvaro Martinez, and Cayetano Cornet in high regard. This dedicated trio has been investing together since 2004 and closely aligned their interests with those of fundholders by investing all their financial net worth in the two strategies they manage. The fund’s process has been executed consistently and we like the managers’ patience and long-term orientation, their high conviction approach, and valuation discipline. The allocation to cyclicals stocks and subordinated debt backfired in the first quarter of 2020, but the team has held on to its positions and performance has since recovered. In 2022, the fund outperformed 95% of its Morningstar Category peers thanks to its European value bias and short position in Spanish government bonds. We think the strategy rests on solid ground and retains the potential to deliver on its mandate. Although we retain the People and Process Pillar scores at Above Average, our enhanced ratings methodology and changes among rivals in the EUR cautious allocation Morningstar Category mean that the fund’s Morningstar Analyst Rating gets an upgrade from Neutral to Bronze for its clean Z share class, while more-expensive shares are rated Bronze or Neutral.
Thomas de Fauw
Johcm Global Emerging Mkts Opps EUR A – Silver from Bronze
JOHCM Global Emerging Markets Opportunities benefits from experienced managers and an established process. Managers James Syme and Paul Wimborne have worked together since 2006 (first at Barings, then JOHCM since 2011). As a duo they have therefore cemented a stable and established co-manager structure. In January 2022, Ada Chan, who has been part of the team since 2016 as a dedicated senior analyst, was promoted to a fund manager. Unlike many peers, the investment approach is driven by topdown country analysis, where the managers continue to use the framework employed at their previous house, while at the stock level, the investment style is GARP (growth-at-a-reasonable-price). The managers have achieved strong results over the strategy’s tenure and have been impressing us with their macro insights throughout the years. Our conviction has increased, resulting in an upgrade of the Process score from Above Average to High. As a result, all share classes have been upgraded to Silver, including the clean A share class.
Lena Tsymbaluk
Kempen (Lux) Global High Dividend AN – Bronze from Neutral
Kempen Global High Dividend – Bronze from Neutral
After a rather turbulent period where key members of Kempen’s dividend team departed, the rebuild team finds itself in calmer waters. The portfolio management team includes long-tenured members who have contributed to the strategy’s historical success. The four other members are less tenured, but with six dedicated portfolio managers the strategy is properly resourced, while the fresh perspectives of recent joiners have helped the team to further fine-tune the investment approach. The team is gradually regaining our conviction, which led to an upgrade of the People Pillar score to Average from Below Average, while the Process score of Above average was retained. Consequently, the strategy’s share classes for both the Dutch- and Luxembourg-domiciled vehicles are upgraded from a Morningstar Analyst Rating of Neutral to Bronze (including the clean N and AN share classes), except for the Luxembourg-domiciled A share class, which retains a Neutral rating because of higher fees.
Jeffrey Schumacher, CFA
M&G Global Macro Bond GBP I – Gold from Silver
M&G Global Macro Bond Fund’s clean I share class is upgraded to Gold from Silver, while more expensive share classes are still rated Silver. Although we retain the People and Process Pillar ratings at High and Above Average, respectively, changes in the competitive landscape within the global flexible bond Morningstar Category, has resulted in the above upgrade. Since inception in 1999 the strategy is managed by experienced lead manager Jim Leaviss, who is also M&G’s head of retail fixed income. We have a high opinion of his ability to formulate independent macroeconomic views, combine them with the wider team’s bottom-up expertise, and willingness and ability to take conviction positions across the fixed-income spectrum. This “go-anywhere” strategy is the most flexible within M&G’s suite of retail bond products. It can take long-short positions (including through derivatives) across the global fixedincome and currency markets and can have (though not so far) negative duration. Since inception the strategy has managed to comfortably outperform its peers and category index in absolute and riskadjusted terms.
Evangelica Gkeka
Downgrades
Abrdn North American Smaller Companies I Acc – Neutral from Bronze
Abrdn US Small Cap Equity’s new, untested lead manager and significant personnel turnover warrant caution. The Morningstar Analyst Rating on the strategy’s cheapest share classes, including the clean I share class falls to Neutral from Bronze, while more expensive shares were either maintained at Neutral or downgraded to Negative. The team is undergoing an unexpected and potentially disruptive manager change. Longtime lead Ralph Bassett left this strategy and the firm on 30 November 2022, after 14 years at the helm. His consistent leadership provided continuity amid many changes on the team. Longtime comanager Jason Kotik left suddenly for a competitor in June 2022, and the analyst bench has suffered from persistent turnover following the 2017 Aberdeen-Standard Life merger, during which time 18 analysts – more than half the combined team – left. Additionally, Aberdeen analysts adopted Standard’s more quantitative research templates and moved from a generalist model to covering specific sectors, which was a major shift. The people pillar was downgraded from Above Average to Average when Kotik left, and following the changes to the process and another PM departure, the process pillar has followed suit, leading to a downgrade of medalist rating.
Eric Schult and Jack Fletcher Price
Cartesio Equity Z – Bronze from Silver
Although we retain the People and Process Pillar scores at Above Average, our enhanced ratings methodology and changes among rivals in the EUR flexible allocation Morningstar Category mean that the fund’s Morningstar Analyst Rating drops from Silver to Bronze for its clean Z share class. We continue to hold the managers and firm founders Juan Bertran, Alvaro Martinez, and Cayetano Cornet in high regard. This dedicated trio has been investing together since 2004 and closely aligned their interests with those of fundholders by investing all their financial net worth in the two strategies they manage. The fund’s process has been executed consistently and we like the managers’ patience and long-term orientation, their high conviction approach, and valuation discipline. The team added value through top-down positioning as well as stock selection. It has protected capital well since its launch in 2004, but the first quarter of 2020 proved disastrous, with several cyclical positions severely hit amidst the market sell-off. Performance has since recovered; in 2022, the fund outperformed 94% of its category peers. We think the strategy rests on solid ground and retains the potential to deliver on its mandate.
Thomas De Fauw
DWS Deutschland TFC – Neutral from Bronze
DWS Invest German Equities TFC – Neutral from Bronze
Marcus Poppe will take over the reins of DWS Deutschland and DWS Invest German Equities from longstanding manager Tim Albrecht in March 2023. Since he lacks a prior track record managing a German equity fund and we have no evidence yet of how he will implement the strategy’s distinct approach, a more cautious stance is warranted. This results in People and Process Pillar ratings of Average, which translates into Morningstar Analyst Ratings of Neutral for all share classes of the funds, including the clean TFC share class.
Natalia Wolfstetter
FSSA Japan Equity III USD – Bronze from Silver
FSSA Japan Equity continues to benefit from a talented portfolio manager and a time-tested qualityfocused investment approach. Lead manager Sophia Li has proved her investment skills by consistently providing keen investment insights and achieving solid results since the strategy’s inception in 2015. While the team’s Japan-dedicated resource is less ample than some of our preferred Japanese equity teams and the recent turnover is less than ideal, the strategy also draws from the broader FSSA team, which we believe has one of the best investment cultures in the region and provides adequate support. The strategy follows the same investment process that has been successfully employed by the FSSA investment team for more than two decades, emphasising the quality of the founders or the management teams. While we have reiterated both People and Process ratings at Above Average, changes in the competitive landscape within the Japan flex-cap equity Morningstar Category have driven the cheapest share classes of the strategy’s Ireland-domiciled vehicle, including the clean III USD Acc share class, to a Morningstar Analyst Rating of Bronze from Silver. The other share classes continue to earn a Bronze rating.
Samuel Lo, CFA
NinetyOne GSF UK Alpha I Acc – Neutral from Silver
NinetyOne UK Alpha I Acc – Neutral from Silver
Following the announced departure of lead manager Simon Brazier, the Process and People Pillars for the Ninety One GSF UK Alpha strategy are both downgraded from Above Average to Average. We view the loss in overall experience to be meaningful, and the new managers have limited track records of their own. That said, the two PMs, Anna Farmbrough and Ben Needham, have been working closely with Brazier for over 10 years, and followed him across from Threadneedle when he left to join Ninety One, and were key members of the investment team during the fund’s more vintage years. As we view the process as being very dependent on the skill of the lead manager, the Process Pillar is also downgraded to Average from Above Average. The overall Morningstar Analyst Rating for the cheaper share classes, including the clean I Acc share class, is downgraded from Silver to Neutral as a result of this downgrade. While other share classes were either maintained at Neutral or downgraded from Bronze to Neutral.
Following the announced departure of lead manager Simon Brazier, the Process and People Pillars for the Ninety One UK Alpha strategy are both downgraded from Above Average to Average. We view the loss in overall experience to be meaningful, and the new managers have limited track records of their own. That said, the two PMs, Anna Farmbrough and Ben Needham, have been working closely with Brazier for over 10 years, and followed him across from Threadneedle when he left to join Ninety One, and were key members of the investment team during the fund’s more vintage years. As we view the process as being very dependent on the skill of the lead manager, the Process Pillar is also downgraded to Average from Above Average. The overall Morningstar Analyst Rating for the clean I Acc share class is downgraded from Silver to Neutral as a result of this downgrade.
Michael Born
Re-Rated from Under Review
Pictet Global Megatrend Selection I – Bronze from Under Review
Pictet announced four departures in January 2023; all left by mutual consent. This contrasts with the strong historical stability of the firm’s thematic equity team, even though the team saw several members leave for rival Natixis in 2018. Alongside the recent departures, the firm announced several other changes: John Gladwyn moved from Pictet-Robotics to take over Pictet-Digital, and several new hires joined to either replace the departed members or further reinforce the team. Although the recent turnover bears watching, we note that Pictet’s thematic equity team has been considerably strengthened in recent years and is comprehensive with its mixture of experienced investors and morejunior personnel. In our view, this team still has an edge. Pictet-Global Megatrend Selection continues to benefit from Pictet’s long heritage in thematic investing where all underlying strategies are managed according to the same well-structured and iterative bottom-up process. We are reinstating the Morningstar Analyst Ratings at Bronze for the cheaper share classes, including the clean I share classes, and Neutral for more expensive shares, the same as before the fund was placed under review.
Ronald van Genderen, CFA
PIMCO GIS Euro Income Bond Instl – Neutral from Under Review
In December 2022, Eve Tournier, who had led this strategy for roughly a decade, left Pimco unexpectedly. Her departure followed a spate of turnover in the European credit team a year earlier, when Pimco’s decision to close its Munich office resulted in three experienced analysts and three portfolio managers leaving the team. Alfred Murata, who helps lead this fund’s global flexible bond sibling strategy Pimco Income, has taken over as lead portfolio manager. Murata is an experienced manager and Pimco stalwart with more than two decades of investment experience, but he shoulders a hefty workload. Additional backing also comes from newly-named comanagers Charles Watford and Regina Borromeo, who have joined alongside existing comanager Nidhi Nakra. We would like to observe how the new portfolio managers work together before building stronger conviction in the team here. We have therefore downgrade the strategy’s People pillar rating from Above Average to Average. As a result, the Morningstar Analyst Ratings of the cheaper share classes and the clean Institutional share class are downgraded from Bronze to Neutral while its more expensive share class remain at Neutral. The fund was previously placed Under Review.
Elbie Louw
PIMCO GIS Total Return Bond Instl USD – Gold from Under Review
We had placed PIMCO’s Total Return strategy Under Review following the news of portfolio manager Scott Mather’s retirement. Scott Mather’s retirement is a loss, but one the fund can handle. Mather began a personal leave in October 2022 – at which time Pimco removed his name from this fund – and decided to retire at the end of the year. The firm delegated his responsibilities to comanagers Mohit Mittal and Mark Kiesel and added Qi Wang and group-CIO Dan Ivascyn to the roster. This is Wang’s first time as a named manager on a publicly available offering, but she has contributed to Pimco’s macro analysis and alternative strategies for years, earning a strong reputation running a flagship Pimco global-macro hedge fund strategy. Morningstar has followed all four of the portfolio managers for several years, and we are comfortable reinstating the strategy’s People Pillar rating at High, despite Mather’s retirement. The fund merits a Morningstar Analyst Rating of Gold for its lowest-priced share classes and its clean Instl USD share class, along with Silver and Bronze ratings for its more costly shares. The fund was previously placed Under Review.
Mara Dobrescu, CFA
Moved to Under Review
Artemis Global Select C – Under Review from Bronze
Mid Wynd International Inv Tr Ord – Under Review from Silver
Artemis announced that Simon Edelsten, lead manager on the Global Select strategy, would retire as a partner at the firm at the end of year, with his comanager Alex Illingworth leaving at the end of February. Edelsten had been with Artemis since 2011 and managed both Artemis Global Select and Mid Wynd International Investment Trust. Edelsten will be replaced by the new head of global equities Alex Stanic, who will join the firm on 1 March. Stanic joins from JP Morgan Asset Management, where he led the global specialist team, and brings 28 years of experience concentrated on global growth equities. As a result of this announcement, we have placed Artemis Global Select and Mid Wynd International under review while we evaluate the change to the investment team. Previously the ratings for Artemis Global Select ranged from Silver to Bronze, depending on fees, with the clean C share class rated Bronze. Mid Wynd International Investment Trust was rated Silver before it was placed Under Review.
Michael Born
BGF Global Corporate Bond D2 – Under Review from Neutral
We are placing BGF’s Global Corporate Bond strategy Under Review following the news of co-portfolio manager Stephan Bassas’ departure from the firm effective 31 March 2023. Bassas, Head of US and Global Credit portfolios, is one of three named portfolio managers on the strategy with Michael Krauztberger and Tom Mondelaers. While Krautzberger’s role is more oversight in nature, Bassas with Mondelaers are directly in charge of the portfolio since January 2020 with Mondelaers ultimately responsible for the strategy. Stephan Bassas’ lead portfolio management responsibilities will be split between Max Huefner and Daniel Chen. Huefner will take the lead for Global Credit effective 1 March 2023 while Chen will lead the Fundamental US Credit and Long Duration expertise. Huefner’s been involved with the strategy since he joined Blackrock in September 2018 implementing best ideas while maintaining the direction and risk budget set by Mondelears and Bassas. Both Heufner and Chen will be added to the portfolio management roster of the BGF Global Corporate Bond strategy in due course. Previously the ratings ranged from Bronze to Negative, depening on fees, with the clean D2 USD share class rated Neutral.
Elbie Louw
JPMorgan Investment Funds – Global Macro Opportunities C – Under Review from Bronze
JPM Global Macro Opportunities C – Under Review from Bronze
JPM Global Macro Sustainable C – Under Review from Bronze
JPMorgan announced that co-portfolio manager Benoit Lanctot is leaving the firm and stepping down as comanager of the global macro franchise, effective as of 1 February 2023. Lanctot was a named manager since late 2019 and had been involved in this strategy since 2017. The group has started the search for a replacement, but the process will require time. Lanctot’s responsibilities will be redistributed across the team members in the interim. The news follows the firm’s announcement in October 2022 of changes to the investment process that resulted in former portfolio manager Virginia Martin Heriz leaving the group, effective 30 Sept 2022. As a result, the strategies’ portfolio management team currently consists of team head Shrenick Shah and Josh Berelowitz. Given the uncertainties arising from these changes, we are placing these strategies Under Review.
Francesco Paganelli, CFA
