Square Mile Academy of funds ratings round up for February has the following highlights:
- One AA rating awarded
- Ten ratings retained
- One rating suspended
- Four ratings downgraded
- One rating removed
Analysts at Square Mile Investment Consulting and Research (Square Mile) conducted 66 interviews with investment professionals from 31 asset management groups over the course of February 2021. Based on the intelligence gained at these meetings, the following actions have been taken.
New rating
Barings Emerging Market Debt Blended Total Return fund: new AA rating
Square Mile’s team of analysts have awarded an AA rating to the Barings Emerging Market Debt Blended Total Return fund. They are impressed by the emerging market debt franchise built at Barings since Ricardo Adrogue joined in 2013, with a structured process and a well-resourced investment team. While the high conviction, best ideas approach employed by the managers will tend to lead to a more volatile profile, Square Mile believes investors should be compensated with superior returns over the long-term. (Decision as at 17.2.21)
Ratings retained
Trojan Income & Trojan Ethical Income funds: ratings retained
On the announcement that Francis Brooke, co-manager of Troy Asset Management’s Trojan Income fund and Investment Director of the firm’s UK Income Strategy, will step down from fund management at the end of 2021, Square Mile decided to make no immediate changes to the ratings held by the Trojan Income and Trojan Ethical Income funds.
From the 1st of January 2022, co-manager Blake Hutchins will assume lead manager responsibilities of the Trojan Income fund supported by the incumbent UK Income team members Hugo Ure and Fergal McCorkell. Mr Ure will remain lead manager of the Responsible A rated Trojan Ethical Income fund, whilst Mr Hutchins and Mr Ure will co-manage the Trojan Income & Growth Trust, a closed-end strategy run along very similar lines to the Trojan Income fund. Square Mile is to meet with Mr Hutchins and Mr Ure in the coming weeks and will provide a further update in due course. (Decisions as at 25.2.21)
Janus Henderson Fixed Interest Monthly Income fund: A rating retained
Janus Henderson has announced its intention to merge the Janus Henderson Preference & Bond fund into the Janus Henderson Fixed Interest Monthly Income fund, both of which are rated A by Square Mile. The proposal is subject to shareholder approval on the 11th of March and, if successful, will be completed on the 18th of March. Square Mile believes that this is a sensible rationalisation of the company’s fixed income fund offering. Over the years, the two funds have become almost identical from an investment perspective and are both managed with a view to delivering a relatively high income to investors from the global fixed income market. While both funds will retain their A ratings, should shareholders approve the proposed merger the Janus Henderson Preference & Bond fund will cease to exist as a separate entity and will therefore be removed from Square Mile’s Academy of Funds. (Decision as at 25.2.21)
BNY Mellon group level changes: all seven ratings retained
BNY Mellon Investment Management has recently announcement that it is repositioning several of its investment firms to enhance the group’s overall capabilities. The proposed changes include transitioning Mellon’s fixed income capabilities to Insight Investment, combining Mellon’s equity and multi-asset capabilities with Newton Investment Management, integrating the firm’s Japanese equity team (BNY Mellon IMJ) with Newton Investment Management and integrating Mellon’s cash team to Dreyfus Cash Investment Strategies.
Although the repositioning is likely to have a material impact on the overall business, Square Mile believes the changes should not significantly affect the day-to-day running of the seven funds that currently hold Square Mile ratings. These are:
- BNY Mellon Global Dynamic Bond Institutional – AA
- BNY Mellon Long Term Global Equity – AA
- BNY Mellon Global Dynamic Bond Income – A
- BNY Mellon Japan Small Cap Equity Focus – A
- BNY Mellon Multi-Asset Balanced – A
- BNY Mellon Real Return – A
- BNY Mellon Sustainable Global Dynamic Bond – Responsible Positive Prospect
(Decision as at 15.2.21)
Rating suspended
Royal London UK Equity Income fund: rating suspended
Following the announcement that Martin Cholwill, lead manager of the Royal London UK Equity Income fund, is to retire, Square Mile has suspended the fund’s A rating. Responsibility for the fund will be assumed by Richard Marwood, who will co-manage the fund alongside Mr Cholwill during a transition period. Although Mr Cholwill’s official retirement date is yet to be confirmed, it will be at some point during 2021. Following the transition period, Mr Marwood will be become the fund’s sole manager. The fund’s rating will be suspended until Square Mile can assess how the strategy will be run under Mr Marwood’s leadership. (Decision as at 9.2.21)
Ratings downgraded
Legg Mason Brandywine Global Fixed Income fund: rating downgraded from AA to A
Square Mile’s analysts have decided to reduce their rating on the Legg Mason Brandywine Global Fixed Income fund from an AA to an A rating. The managers’ preference for emerging market debt over developed market debt has led to disappointing relative returns over a number of years. The fund’s risk profile versus its index has also increased over time. Nonetheless, Square Mile continues to like the Brandywine team and approach, believing that the fund can play a role in portfolios as a higher risk fixed income exposure although the reduced conviction is reflected in this rating change. (Decision as at 11.2.21)
M&G Optimal Income, M&G Corporate Bond and M&G Strategic Corporate Bond funds: ratings downgraded from AA to A
Square Mile has downgraded the AA ratings awarded to the M&G Optimal Income, M&G Corporate Bond and M&G Strategic Corporate Bond funds to A ratings. Square Mile’s analysts categorise these funds as flexible all-weather fixed-income strategies designed to outperform over the economic cycle. However, the continued underperformance from duration positioning has become something of a structural position, in Square Mile’s view. This has created an unintended bias reducing the flexibility of the funds to adapt to evolving market conditions.
While Square Mile still considers these funds to be compelling propositions managed by a highly experienced team, an A rating is more reflective of the analysts’ conviction in the managers’ ability to meet their performance aspirations. (Decision as at 10.2.21)
Rating removed
Jupiter Distribution fund: rating removed
Square Mile has removed its rating on the Jupiter Distribution fund which was suspended in December 2020 on the news that Alastair Gunn was leaving Jupiter and that the fund would be managed by the Multi-Asset team, headed by Talib Sheikh. Following an update with the Multi-Asset team, Square Mile’s analysts believe is very likely that the fund will be run in a different style and approach than it was previously. Although Square Mile thinks Jupiter’s plans for the fund are sensible, they are unlikely to be completed before Q3 2021 and so believes the most appropriate action at present is to remove the rating and monitor the fund’s progress. (Decision as at 5.2.21)
