4 Intriguing Prospects for Your List
These strategies may be under your radar.
Twice a year, Morningstar's manager research analysts publish Morningstar Prospects, a list of up-and-coming or under-the-radar investment strategies that are not currently covered by the research group but might be in the future. The list provides advance notice of some promising funds that you might want to put on your watchlist.
Funds graduate to full coverage when the team is comfortable assigning a Morningstar Analyst Rating. Prospects sometimes drop from the list if there are negative fundamental changes, such as investment team turnover or a material change to the investment process, or if investor interest isn't strong enough to maintain coverage.
The recently published June 2019 list, which is available to subscribers of Morningstar Direct here, featured 45 investment strategies, across asset classes and vehicle types, including exchange-traded funds and a separate account. Morningstar Prospects added 13 strategies, graduated seven to full coverage, and dropped five. Of the seven graduates, the JPMorgan SmartRetirement Blend target-date series became the first Prospect to graduate with an Analyst Rating of Gold.
Here are a four intriguing Prospects:
Aperture New World Opportunities (ANWOX) is the first launch from a new firm. Peter Kraus, former CEO of AB, worked with Generali to found Aperture Investors in 2018 based on the guiding principle that performance-linked fee structures better align manager incentives with those of fundholders. This fund's annual management fees will range from a minimum of 0.40% when its performance is equal to or lower than that of the Bloomberg Barclays Emerging Markets USD Aggregate 1-5 Year Index benchmark to a maximum of 2.05% if it outpaces the bogy by 5.50% or more. The 1.35% fulcrum fee, which is the midpoint from which the fee is calculated for the year to date, is expensive compared with other emerging-markets bond options (the typical no-load fund charges 92 basis points). Still, this performance-linked pricing is an intriguing feature. Lead manager Peter Marber ran emerging-markets debt strategies at HSBC from 2007 to 2011 and comanaged Loomis Sayles Short Term Emerging Markets Bond from 2013 to 2016 with mixed results. Since joining Aperture, he's built a team of two sovereign and macro analysts, one equity analyst, and one trader, which is light compared with the industry norm. Like most funds in the Morningstar Category, this one focuses on hard-currency-denominated sovereigns and corporates, but it is one of a handful focused on shorter-dated debt (hence the unique benchmark). While those traits can signal a tamer offering, this fund will also own a smattering of local-currency debt and frontier-markets exposure, such as Zambia, Kazakhstan, and Mongolia, as well as a low-single-digit emerging-markets equity stake.
Baillie Gifford Emerging Markets' (BGEDX) team is talented. Richard Sneller heads an eight-member group and has been at the helm since the strategy's 2003 inception, and the group also draws on the firm's 100-plus investors. Sneller and crew search for companies they believe can double in size within five years, preferring those with large addressable markets, sustainable competitive advantages, healthy balance sheets, and effective management. They pay little attention to short-term earnings; instead, the managers buy firms undervalued according to their long-term outlook. As a result, the portfolio's price multiples such as price/equity and price/book typically exceed those of the MSCI Emerging Markets Index. In addition, the portfolio is somewhat concentrated--generally, the top 10 positions account for more than one third of assets--and it holds some riskier fare. Therefore, the strategy has a Morningstar Risk rating of High, despite owning more giant-cap stocks than the bogy. Consistent with management's long-term mindset, turnover has been less than that of the typical diversified emerging-markets category peer, and firmwide performance bonuses are paid on rolling five-year performance. The strategy has delivered over the long haul, landing in the category's top decile since its inception. Fees are also competitive with rivals, adding to the strategy’s appeal.
JPMorgan SmartSpending 2050 (JTQBX) is a new entrant in the tough-to-crack postretirement investing space. It's led by portfolio manager Anne Lester and her multi-asset team, which has established itself as one of the leaders in multi-asset investing with the JPMorgan SmartRetirement target-date series, which earns a Gold rating. Lester and her team take a distinctive approach to investing in retirement. Rather than designing a fund to grow in value or provide a steady level of income, this fund is designed for the investor to spend down (or sell off) portions of the investment annually to fund discretionary retirement spending. J.P. Morgan hopes to achieve its goal by setting an annual volatility target and adjusting allocations to various asset classes accordingly. The fund matures in 2050, when the investor reaches the age of 100. J.P. Morgan will typically keep this series' allocations to stocks at 40% of the overall portfolio, though the equity allocation can and has changed in response to changes in market volatility. Lester and her team also use the tactical signals that have proved successful in the SmartRetirement target-date series, which was founded in 2006.
Matthews Asia ESG (MASGX), which launched in April 2015, has several factors in its favor. First and foremost, Matthews International Capital Management has a long and successful history of investing in Asia. The firm opened its first two Asia ex-Japan funds in the early 1990s and now has 17 funds in its all-Asia lineup. Eleven of the firm's funds currently receive Analyst Ratings, and all of those are Morningstar Medalists. Second, this fund is in good hands. Lead manager Vivek Tanneeru is a Matthews veteran who also serves as a comanager on Silver-rated Matthews Asia Dividend (MAPIX) and has 15 years of investment experience, while comanager Winnie Chwang also serves as a comanager on Bronze-rated Matthews China (MCHFX) and has spent her entire 15-year investment career at Matthews. The two managers have a skilled and seasoned team of 40 investment professionals to draw on for support. Third, Tanneeru and Chwang employ an attractive process that combines sensible environmental, social, and governance principles and a sound growth discipline. And fourth, this fund has posted solid results. From its inception through June 2019, the fund topped its average peer and MSCI All Country Asia ex Japan benchmark, with lower volatility, as measured by standard deviation.
Christopher Franz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.