The research firm's “analyst rating” is forward-looking analysis.
On an annual basis, analysts review and if necessary re-rate the funds on a five-tier scale with three positive ratings of Gold, Silver, and Bronze, a Neutral rating, and a Negative rating, said Germaine Share, research analyst based in Hong Kong.
The analyst rating differs from the firm's backward-looking “star rating”, which assigns 1 to 5 stars based on a fund's past risk- and load-adjusted returns versus category peers.
The Analyst Rating is based on the analyst's conviction in the fund's ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over the long term. If a fund receives a positive rating of Gold, Silver, or Bronze, it means Morningstar analysts think highly of the fund and expect it to outperform over a full market cycle of at least five years.
The Analyst Rating is not a market call, and it is not meant to replace investors' due-diligence process. It cannot assess whether a fund is the right fit for a particular portfolio and risk tolerance. It is intended to supplement investors' and advisors' own work on funds and, along with written analysis, provide forward-looking perspective into a fund's abilities. It picks up where commonly watched measures of the past leave off.
1. Baring Eastern Europe A EUR Inc
There have been some changes to the process instigated by the new head of equities, Jean-Louis Scandella. The team no longer produce a country score and at the stock level there are now three main factors considered– quality, growth and upside.
In addition, there is a longer-term orientation, and the team has been encouraged to show more conviction in their portfolios. Although the changes to the investment process appear promising, we do not yet have evidence that the strategy can be implemented effectively.
-- Lena Tsymbaluk, Investment Research Analyst
2. Fidelity South East Asia A-USD
Dhananjay Phadnis took over this fund from long-serving portfolio manager Allan Liu on March 1, 2015. Liu was a market veteran, having managed portfolios since 1990 and the fund was awarded a Morningstar analyst rating of silver under his management.
Phadnis is a relative newcomer but one to watch. He has a strong track record running an Asia-Pacific ex-Japan pilot fund since February 2011, outperforming his benchmark by more than 4% per annum on a gross-of-fees basis. He will be applying the same quality-growth approach for Fidelity South East Asia, which gives us cause for optimism.
Further, Phadnis previously managed Fidelity Indonesia, which had a Silver rating. That fund was our top pick in the category because of his strong stock-picking and portfolio-construction abilities. While we think investors are in good hands here, it is early days for Phadnis on this fund.
-- Arne Hilke, research analyst
3. Invesco PRC Equity A-AD USD
William Yuen replaced former manager Joseph Tang on 30 March 2015. Yuen has 17 years of investment experience and a decent background investing in Chinese equities, having led the Invesco Asia Consumer Demand Fund since its launch in 2008. The fund has consistently invested about 40% in Hong Kong and China and has beaten its prospectus benchmark under Yuen’s management.
However, Yuen has moved from a regional fund to a single country fund, Share said.
“The team has seen a lot of turnover and has a lot of new hires. We need to see how managers perform on a single country fund and how a fairly new team works together.”
More time is needed to build conviction in Yuen and the execution of his investment process on a single-country fund.
-- Germaine Share, research analyst
4. Investec GSF Glbl Gold A Acc Grs USD
The fund’s rating was previously “under review” following the announcement that Bradley George will relinquish his responsibilities as head of the commodities and resources team and co-manager of this fund. We view George’s departure as a loss, particularly as it has resulted in meaningful changes across the team. This fund is now co-managed by George Cheveley and Hanré Rossouw.
Rossouw joined Investec in 2013 as investment specialist within the commodities and resources team. This marks the second change in management in the last two years. We therefore believe a Neutral rating to be appropriate at this current time while we continue to monitor the new management structure and the implementation of the process.
-- Fatima Khizou, investment research analyst
5. Investec GSF Glbl Ntrl Res A Acc Grs USD
The fund’s rating was previously “under review” following the announcement that Bradley George will relinquish his responsibilities as the head of the commodities and resources team and co-manager of this fund. We view George’s departure as a loss, particularly as it has resulted in meaningful changes across the team.
This fund is now co-managed by the new team head, Tom Nelson, and the existing co-manager George Cheveley. We acknowledge the continuity provided by Cheveley, who has run the fund since its launch; however, we believe some caution is warranted while we continue to monitor the new management structure and the implementation of the process.
-- Fatima Khizou, investment research analyst
6. Jupiter JGF China Select L USD Acc
The fund was previously “under review”, following the announcement of the departure of the fund manager, Philip Ehrmann.
Since January 2015 the fund has been managed by Ross Teverson, who joined the company at the end of 2014 to form and head the GEM team. As a consequence of this, the people involved in the running of this fund have changed, together with the investment process. Teverson himself has experience as a manager of Asia Pacific ex-Japan and GEM portfolios, but has not previously managed a China fund.
Given the significant changes to the team and process, we do not yet have enough conviction to award this fund a positive rating.
-- Simon Dorricott, fund analyst