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Square Mile’s fund ratings round-up for January 2021

  • Three new ratings awarded 
  • One rating reintroduced 
  • Three ratings retained 
  • Two ratings suspended 
  • Two ratings removed 

Analysts at Square Mile Investment Consulting and Research (Square Mile) conducted 143 interviews with investment professionals from 44 asset management groups over the course of January 2021.  Based on the intelligence gained at these meetings, the following actions have been taken.

New ratings 

Janus Henderson UK Absolute Return fund: awarded an A rating 

Square Mile’s team of analysts have introduced the Janus Henderson UK Absolute Return fund into the Academy of Funds with an A rating. The fund seeks to provide a positive return over any 12-month period in all market conditions by making long and short investments in large cap equities, primarily in the UK.  The analysts consider the fund’s managers to be highly experienced with a good long-term track record in stock selection and in providing steady returns. The fund has also protected investors’ capital to a high degree in periods of market stress and Square Mile believes the fund should continue to exhibit similar return characteristics in the future. (Decision as at 28.01.21)

Neuberger Berman Uncorrelated Strategies fund: awarded an A rating 

Neuberger Berman Uncorrelated Strategies fund is another new addition to the Academy of Funds with an A rating.  This is an absolute return fund with characteristics that make it a useful building block in diversified portfolios, in Square Mile’s opinion. In particular, the fund’s returns to date have been negatively correlated to equity markets. The fund provides exposure to a range of complementary and sophisticated investment strategies which many investors might be reluctant to allocate to on a standalone basis. However, the fund’s management team is deeply resourced and very experienced and investments are structured in a way that allows risks and exposures to be monitored and managed in real time. (Decision as at 27.01.21)

iShares Overseas Government Bond Index fund: awarded a Recommended rating 

Square Mile has awarded a Recommended rating to the iShares Overseas Government Bond Index fund.  It is managed by large and experienced passive team at BlackRock and aims to closely track the JP Morgan Global Government Bond Index ex UK. However, as the fund does not hedge any of its exposure back to sterling, investors will be exposed to currency risk as well as interest rate and credit risk. (Decision as at 11.01.21)

Rating reintroduced 

L&G UK Property fund: re-introduced into the Academy of Funds with a Recommended rating 

Square Mile has reinstated the Recommended rating held by the L&G UK Property fund.  This rating was suspended when trading in the fund was halted and as result of the imposition of material uncertainty clauses on the valuations of its underlying properties. Since then, Square Mile has continued to monitor the fund, and during the suspension of trading the manager was able to raise sufficient liquidity to meet expected client redemptions upon its reopening. Outflows since the fund recommenced trading on 13.10.20 appear to have slowed but the fund is expected to maintain a cash level of 15-20% to meet further redemptions.

Throughout the recent difficulties faced by commercial property funds, Square Mile’s analysts believe that this strategy has been prudently managed, although they recognise that the asset class and the open-ended fund structure for direct property funds still face many challenges. (Decision as at 15.01.21)

Rating retained 

Blackrock European Absolute Alpha funds: A rating retained  

Blackrock has confirmed that David Tovey, co-manager of the Blackrock European Absolute Alpha fund since June 2017, is to leave the firm after 23 years.  Stefan Gries, who has been closely involved with the fund since its launch in 2009 and a named co-manager since 2013, remains in situ. Mr Tovey is replaced by Stephanie Bothwell who has been promoted to co-manager of the fund in her first ‘named portfolio manager’ role since joining Blackrock three years ago. However, Ms Bothwell has already been an important contributor of ideas, particularly short investments, to the fund. In addition, Chris Sykes, who has worked closely with Mr Tovey, will continue to support Mr Gries and Ms Bothwell.

Square Mile has been reassured by the steps Blackrock has taken to ensure continuity of the fund’s very successful investment process. Square Mile’s analysts will meet Mr Gries and Ms Bothwell in the coming weeks, but have decided neither to remove nor suspend the fund’s A rating at present. (Decision as at 21.01.21)

Ratings retained/suspended 

Premier Miton Multi-Asset Fund Rationalisation: three ratings retained, two ratings suspended 

Premier Miton has announced a number of changes as part of the rationalisation of its Premier Miton Multi Manager outcome offering, which spans four specialist investment teams and some 20 strategies.  This led Square Mile to review the ratings awarded to five funds within the range.   As a result, the Multi-Asset Distribution (AA rated), Monthly Income (AA rated) and Global Growth (A rated) funds all retain their respective ratings.  However, the A ratings held by the Multi-Asset Conservative Growth and Growth & Income funds have been suspended.

The Multi-Asset Distribution fund is undergoing changes to facilitate a reduction in its OCF which will be capped at 1.20% from 30th June 2021. Its objective and the way it is managed are unaffected, but the team will now make use of passive vehicles as well as Premier Miton’s directly invested, actively managed fund range in order to further reduce costs. Whilst this constitutes a departure from the active, unfettered fund of funds approach the strategy has historically followed, Square Mile does not believe it will affect the team’s ability to meet its longer-term objectives, although the portfolio’s evolution will be carefully monitored. The Multi-Asset Monthly Income and Global Growth funds are unaffected by any changes.

However, the Multi-Asset Conservative Growth and Growth & Income funds now fall under the leadership of David Jane and Anthony Rayner in the macro thematic multi-asset team with effect from 1st February 2021. Given this management change and the fact the funds will follow a different investment approach, Square Mile’s analysts have suspended their ratings whilst they build a better understanding of the new management team’s future plan for these funds.  (Decision as at 21.01.21)

Ratings removed 

ASI UK Unconstrained Equity and UK Income Unconstrained Equity funds: ratings removed 

Square Mile has taken the difficult decision to remove the A ratings from the ASI UK Unconstrained Equity and ASI UK Income Unconstrained Equity funds. While there have been some signs of an improvement in their very recent returns, the performance challenges both strategies have faced over the medium term are such that Square Mile has lost conviction in their respective managers’ ability to consistently meet their long-term performance aspirations. (Decision as at 08.01.21)

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