Morningstar Australasia Adds AB, Ausbil, Capital, First State Funds to Prospects List

8 June 2016

Nine Strategies Graduate to Full Qualitative Analyst Coverage

Morningstar Australasia today published its six-monthly Morningstar Prospects Report, which highlights promising investment strategies that Morningstar’s manager research analysts consider merit broader attention but do not yet formally cover.

“The aim of our independent qualitative manager research is to determine which investments deserve the attention of investors and advisers, and which do not,” Kathryn Young, Morningstar Director Manager Research Ratings Asia-Pacific, said. “We’re always on the lookout for strategies that may deserve a wider audience and eventually full analyst research coverage. Morningstar Prospects represent the most promising candidates on our research ‘bench’. In this update, we’ve added four new strategies, and nine have graduated to full analyst coverage.”

New Morningstar Prospects

  • AllianceBernstein Managed Volatility Equity (Morningstar Ticker: 40678, APIR: ACM0006AU)
    AllianceBernstein Managed Volatility Equity is an interesting and innovative investment strategy, led by well-respected Chief Investment Officer Roy Maslen. The strategy aims to deliver returns in line with the S&P/ASX300 Index grossed-up for franking credits, but with 25% less volatility than the index, by actively managing risk using quantitative and fundamental analysis while holding a portfolio of 70 stocks with low portfolio turnover. The real difference from other low volatility funds is that up to 20% can be invested in global developed equities, mainly in sectors where the ASX provides limited diversity. The strategy has achieved robust returns against the index since inception in April 2014, with a reasonable 0.55 percent annual fee. This is a well-run reasonably priced fund at a relatively early stage of establishment.
  • Ausbil 130/30 Focus Fund (Morningstar Ticker: 18354, APIR: AAP0003AU)
    Ausbil 130/30 invests primarily in Australian securities chosen from the S&P/ASX200 Index, targeting long positions of 130% and short positions of 30%. Portfolio manager Gian Pandit focuses on finding companies whose future earnings are mispriced, combining quantitative ranking with qualitative scoring of companies, incorporating momentum factors, analyst conviction, valuation, and the sustainability of the business model. Pandit also uses derivatives such as options and futures to manage risks. While we think Pandit has found a more natural home at Ausbil, the onus remains on him to repeat his track record in a new environment and with a new team.
  • Capital Group New Perspective (AU) (Morningstar Ticker: 40984, APIR: CIM0006AU)
    Capital Group New Perspective’s novel multi-manager approach to global equities investing combines seven distinct portfolios, each run by a different internal portfolio manager. It’s an eclectic group with diverse experience, based in offices around the globe. Senior portfolio manager Rob Lovelace currently has oversight, but this position rotates to avoid undue biases from any single investor. A stock is considered for inclusion only if it derives 25% of revenues from outside its domicile, as Capital believes the most successful firms will be those that benefit from changing global trade patterns. A large portfolio of more than 200 stocks can often cause benchmark-like returns, but this hasn’t been the case, US dollar performance having been top quartile 80% of the time. The 1.05% annual fee helps make Capital Group New Perspective enticing.
  • CFS Asian Growth (Morningstar Ticker: 41320, APIR: FSF1773AU)
    First State Stewart is one half of the investment team born out of the break-up of the well-respected Stewart Investors. While owned by First State Investment, this boutique-type group runs the same long-term, bottom-up, sustainable growth style with an absolute return mindset. Businesses with strong franchises are often a preference. Veteran Richard Jones leads a 15-person team based largely in Hong Kong and Singapore who broadly have good tenure with the firm. The team’s pedigree shines through strongly, First State Stewart Asian Growth having outpaced the index by 2.5 percentage points or more over rolling one-, three-, and five-year timeframes.

Prospects Which Have Graduated to Full Analyst Coverage

  • BMO Pyrford Global Absolute Return (Morningstar Ticker: 40602, APIR: PER0728AU)
  • BT Global Emerging Markets Opportunities (Morningstar Ticker: 19536, APIR: BTA0419AU)
  • Fidelity Future Leaders (Morningstar Ticker: 19893, APIR: FID0026AU)
  • Maple-Brown Abbott Global Listed Infrastructure (Morningstar Ticker: 19900, APIR: MPL0006AU)
  • MLC Inflation Plus Assertive (Morningstar Ticker: 14829, APIR: MLC0782AU)
  • MLC Inflation Plus Conservative (Morningstar Ticker: 19941, APIR: MLC0924AU)
  • MLC Inflation Plus Moderate (Morningstar Ticker: 19942, APIR: MLC0923AU)
  • Robeco BP Global Premium Equities (Morningstar Ticker: 40752, APIR: ETL0415AU)
  • Sanlam Managed Risk Global Share (Morningstar Ticker: 40853, APIR: FSF1762AU)

Morningstar’s independent investment research is subscriber-paid rather than issuer-funded, and research coverage is determined by the firm’s manager research team. Morningstar published analyst ratings and research on about 500 flagship Australian and New Zealand strategies across 19 sectors at 30 April 2016, spanning all the major asset classes and mapping to about 4,500 underlying managed funds, exchange-traded funds, and listed investment companies.

Prospect strategies potentially have enduring competitive advantages and long-term appeal, but have not so far met Morningstar’s criteria for full manager research coverage. Manager research analysts identify Prospects on the basis of the firm’s standard framework of analysing investments’ process, people, parent, price, and performance.

Prospects have some or all of these characteristics:

  • a unique strategy or process;
  • an existing strategy with new, possibly transformative, management;
  • a new strategy run by a manager with a long record elsewhere;
  • under-the-radar strategies that have established track records but aren’t well known; and
  • a promising option in a category where investors are often looking for new ideas.

Candidates are sourced from coverage requests from clients and fund managers, strong competitors to funds already under coverage, and categories which have captured significant investor attention and where it can be hard to find appropriate funds. Some strategies may ‘graduate’ to full analyst coverage. Others are dropped from the Prospects list because their fundamentals deteriorate or there are material, negative changes.

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