Square Mile Academy of Funds: ratings round-up for August 2022

Analysts at Square Mile Investment Consulting and Research (Square Mile) conducted 46 interviews with investment professionals from 29 asset management groups over the course of August 2022.

Based on the intelligence gained at these meetings, and following reviews in the light of corporate announcements and developments, the following actions have been taken.

New ratings 

TT European Opportunities Long/Short fund awarded A rating 

Square Mile’s team of analysts have introduced the TT European Opportunities Long/Short fund to the Academy of Funds with an A rating.

The analysts consider this fund to have the characteristics that are essential in a good absolute return fund. It has an excellent track record in protecting capital in falling stock markets, primarily due to the managers’ intense focus on risk management and willingness to reduce both gross and net market exposure in adverse market conditions. Second, it is managed with a low level of net market exposure and third, the managers have demonstrated their ability to generate profits on both long and short investments. As a result of these attributes, the fund’s returns exhibit low correlation with stock market indices.

Although the fund’s track record is relatively short, having been launched in September 2019, it spans both the COVID crash of Q1 2020 and the steep falls in stock markets in the first half of 2022, arguably the two most severe challenges faced by investors since 2008’s financial crisis. The fund passed both tests with flying colours. (Decision as at 25.08.22)

Stewart Investors European (Ex UK) Sustainability fund awarded Responsible PP rating 

Square Mile has awarded the Stewart Investors European (Ex UK) Sustainability fund with a Responsible Positive Prospect rating. Launched in January 2022, this fund has a team-based approach with a focus on identifying high quality companies with products or services that help to make the world more sustainable.

The analysts hold the fund’s managers in high regard as they have demonstrated genuine passion and commitment for investing responsibly, predating many investors and groups. The team invests for the long-term and the fund has the potential of being a compelling long-term responsible investment proposition. However, the strategy is in its early days and whilst the team have been investing in European companies in their global equity strategy since 2012, as a standalone European product, this is new departure.  Square Mile would also like to see the fund’s assets and investor base grow over time from their current levels. (Decision as at 19.08.22)

M&G Sustainable Multi Asset Range awarded A rating 

Square Mile has awarded the three funds in the M&G Sustainable Multi Asset range – Cautious, Balanced and Growth – Responsible Positive Prospect ratings. The analysts consider this range to be an attractive proposition for investors seeking a risk-targeted, multi-asset solution managed with a sustainable investment approach. Launched in December 2020, this is a relatively new range, but its process is well considered and it has a strong level of supporting resources.

Although manager Maria Municchi lacks significant lead manager experience, she has impressed Square Mile’s analysts during their interactions on this range as well as on the A-rated M&G Episode Income fund, where she is deputy fund manager. The analysts believe this range to have the potential of delivering on its objectives and anticipate awarding it a full rating once assets have built and their conviction strengthens further. (Decision as at 5.8.22)

LF Ruffer Diversified fund awarded A rating 

Square Mile’s analysts have awarded the LF Ruffer Diversified Return fund an A rating and it enters the Academy of Funds. Although only launched in September 2021, this multi-asset, absolute return fund follows a tried and tested strategy dating to 1995, previously only available in weekly dealing formats and to Ruffer’s institutional and private clients. The analysts consider its long track record to be impressive, with past returns comparing competitively with stock markets but exhibiting only half the volatility.

However, the fund’s standout feature is its low drawdowns. It has protected investors’ capital when it has mattered most, such as in the dotcom bust, the great financial crisis, the COVID crash and in the first half of 2022, drawing on a judicious and dynamic mix of growth and defensive investments. Particularly important in the latter category are options and other derivatives which are used to hedge stock market and interest rate risk when deemed appropriate by the managers. (Decision as at 5.8.22)

 Ratings retained 

AXA Framlington Managed Balanced fund retains A rating following name change 

In July 2022, the AXA Framlington Managed Balanced fund was renamed as AXA Framlington Global Sustainable Managed fund. At the same time, its mandate changed to place greater emphasis on sustainable investing. The strategy now includes a focus on investing in sustainable “ESG leaders”, whilst avoiding the most harmful industries and businesses. However, the fund’s core philosophy and its management team remain unchanged.

While this constitutes an evolution of the fund’s investment approach, Square Mile’s analysts do not view it as a significant departure from its previous mandate and there has been minimal disruption to the underlying portfolio. The fund therefore retains its A rating. The analysts do not believe that the fund currently meets the required threshold to be considered for a “Responsible” rating. However, its ESG assessment score has been adjusted to reflect the greater emphasis on sustainability within the investment process. (Decision as at 10.08.22)

abrdn funds retain ratings following name changes 

In August 2022, abrdn re-named several funds in line with the firm’s new brand. This has not impacted the investment approach of any Square Mile-rated funds and their ratings remain as follows: