This Well-Built Team Earns an Upgrade

June was a relatively cheery month for Morningstar’s fund analysts, with a handful of strategies earning a higher level of conviction and no notable downgrades. A couple of well-designed fixed-income strategies made it to our coverage. Below we provide the highlights.

GQG Partners Sets an Example for Young and Growing Teams

Rajiv Jain and his crew of diverse and experienced analysts earned a People Pillar upgrade to High at GQG Partners Global Quality Equity Fund GQRIX. Prior to co-founding GQG Partners in 2016, Jain had built a commendable record as a global equity investor at Vontobel. His penchant for growing companies with resilience in slow economies and his ability to nimbly change course on positions led both Virtus Vontobel Emerging Market Opportunities HIEMX and Virtus Vontobel Foreign Opportunities JVXIX to comfortably outperform their relevant peers and indexes under his leadership.

At GQG, he put together a group of analysts and managers with substantial industry experience. They also brought a diverse skill set coming from their stints in forensic accounting, investigative journalism, and more, helping the team uncover less-evident information and trends. Recently, the team made junior hires to vary the generational mix and promoted two analysts to manager positions, alleviating some of the key-person risk.

With the same focus on quality growth and willingness to make quick and decisive portfolio shifts, Jain and his team have rewarded their investors with outperformance since inception (June 2017 for Australia, April 2019 for the United States) in all jurisdictions. Notably, the team’s decisive moves in and out of the technology sector contributed to the strategy’s roughly 24-percentage-point lead against its average peer in Australia and the U.S. in 2022, when growth stocks tumbled.

Top-Rated Vanguard Index Fund Earns Yet Another Upgrade

A well-thought-out construction of its index drove the Process Pillar upgrade to High for Vanguard Dividend Appreciation Index Fund VIG, which has Morningstar Medalist Rating of Gold. The fund’s benchmark S&P US Dividend Growers Index features screens for quality and stability, including a liquidity threshold and a 10-year history of increasing regular cash dividend payments. It also eliminates stocks with top-quartile dividend yields (top 15% for existing constituents), as they are more likely to cut their dividends.

The resulting portfolio holds more companies in stable sectors such as consumer defensive and healthcare that are likely to hold up better during market volatility. A market-cap-weighting approach leads to less turnover as well.

Since its inception in 2006, the fund has provided a smoother ride to its investors than those invested in the broader U.S. market (as represented by the Russell 1000 Index). Examples include its 6.1-percentage-point outperformance over the Russell 1000 during the 2008 global financial crisis and its 3.0-percentage-point lead during the coronavirus-driven drawdown in early 2020. Vanguard’s very low price tag of 0.06% compounds this strategy’s durable edge.

2 Bond Funds Debut as Medalists

Baird Core Intermediate Municipal Bond BMNIX and JPMorgan Ultra-Short Income ETF JPST earned inaugural Morningstar Medalist Ratings of Silver. Baird’s municipal-bond strategy benefits from the firm’s collaborative investing culture and a straightforward process that focuses on high-quality issuances without complications like derivatives or leverage. JPMorgan Ultra-Short Income features a seasoned team and a process that aims to balance liquidity and returns. Both strategies collect modest fees compared with their respective peers.