Funds gaining and losing their ratings this summer

FundCalibre’s research team has a formal investment committee meeting twice a year. During this meeting, the team debates new funds it has identified for potential ratings and existing funds that may need to lose their rating based on either a deteriorating AlphaQuest score or other fundamental manager or fund changes.

Following our annual investment committee meeting this July, eight new Elite Ratings have been awarded:

Eight new funds gain ratings

BMO Responsible Global Equity: Managers Jamie Jenkins and Nick Henderson invest in quality growth companies from across the world, with a bias towards mid-caps. Constraints include: no alcohol, gambling, pornography, weapons or tobacco, and the fund is fossil fuel free. Consideration is also given to environmental impact, animal welfare, human rights and labour standards.

Brown Advisory Global Leaders: to be chosen for this fund, a company needs to offer an exceptional customer outcome (typically having a dominant market position and multiple competitive advantages), have a 20% return on invested capital – or a pathway to it within 5 years, company management must demonstrate that is has allocated capital skilfully and ethically in the past, and the valuation must be appealing.

LF Miton European Opportunities: this multi-cap European equity fund has a bias towards medium-sized companies. Each will have a strong brand or clear competitive advantage that allows them grow their revenues, increase profit margins and return on capital independently of the external economic backdrop. The fund will hold between 40-55 holdings, none of which will exceed 4% of the portfolio.

LF Lindsell Train UK Equity: this fund invests in a highly concentrated portfolio of predominantly UK-based quality companies. The holdings are usually large, well-known companies that are dominant in their industry due to factors such as strong brands, economies of scale or barriers to entry. Nick is a very patient investor: having invested in a company he will often not trade in or out of it for months or years.

Pictet Global Environmental Opportunities: this is a unique global equity fund, that uses the nine areas of the planetary boundaries framework (climate change, freshwater use, land use, ocean acidification, nitrogen and phosphorous cycle, biodiversity, ozone depletion, aerosol loading and chemical pollution) in its investment process. The managers identify companies where a minimum of 20% of their activities are actively solving environmental challenges. Fundamental analysis is then undertaken on potential stocks.

Premier Diversified Growth: this is a multi-asset fund in the IA Mixed Investments 40-85% Shares sector. Run by Neil Birrel, the majority of the portfolio will be invested in equities from all over the world, while the fixed income exposure will vary between government, corporate and convertible bonds as well as debt instruments secured on various assets. The alternative investment holdings are typically via specialist investment companies and REITs.

Find out what Neil had to say about his asset allocation on this recently filmed interview

Slater Growth: run by Mark Slater, this UK equity fund invests in companies with strong competitive positions and solid cash generation. Mark is careful not to overpay for stocks and generates his investment ideas with the help of his excellent personal networks and the use of a filter, which identifies key criteria. The final portfolio will have between 25-60 holdings, depending on his conviction and availability of opportunities.

TB Wise Multi-Asset Growth: this multi-manager fund sits in the IA Flexible sector so the manager has a significant degree of discretion over asset allocation and the investment process starts here – by building a macroeconomic position and then creating an asset allocation framework from a growth, risk and value perspective. There are around 40 underlying holdings in funds and investment trusts, with a preference for out-of-favour areas.

Funds losing their Elite Ratings

Just one fund lost its Elite Ratings due to a deteriorating AlphaQuest score: Lazard Emerging Markets.

Other fund changes

Three funds lost their Elite Rating but gained an Elite Radar

Jupiter European: as communicated earlier this year, manager Alexander Darwall has now handed over management of Jupiter European fund to Mark Nichols, who was previously co-manager of Elite Rated Threadneedle European Select. While we like Mark and have confidence in his abilities, we cannot transfer or maintain the AlphaQuest score, so we have moved the fund to our Elite Radar.

Brown Advisory US Flexible Equity: this fund was managed by Hutch Vernon since its launch in the UK in 2014. However, Hutch has now retired, handing the reins to co-manager Maneesh Bajaj. We have met Maneesh and like his approach, but he has only co-managed the fund since 2017, so we are unable to attribute any of the AlphaQuest score to him. As such, we have moved the fund to our Elite Radar.

Post the investment committee meeting, we also learned that Stephen Moore, manager of Artemis US Extended Alpha, would be leaving the company. From 30 September 2019 it will be run by William Warren. We like the US team at Artemis and William has impressed us. However, as we cannot attribute any of the AlphaQuest score to William, the fund will lose its Elite Rating and move to an Elite Radar while he establishes a three year track record as lead manager.

One fund was promoted from Elite Radar to a full Elite Rating

Liontrust UK Micro Cap: this fund recently celebrated its third anniversary and has the minimum track record to be considered for an Elite Rating. Applying the team’s proven ‘economic advantage’ investment process,to invest in the UK’s smallest businesses, it has followed nicely in the footsteps of Elite Rated Liontrust UK Smaller Companies and Liontrust Special Situations funds. The AlphaQuest score is very high and we had no hesitation promoting it to a full rating.

The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.