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Morningstar Prospects List: Promising Investment Strategies to Get to Know

This set of investment strategies to watch included allocation, alternative, and fixed-income funds

Chris Franz, Morningstar Research Services LLC

 

The Morningstar Prospects list has had 13 additions, seven graduates, and five drops within the first half of 2019. For this report, Morningstar’s manager research analysts focused primarily on allocation, alternative, and fixed-income funds when looking for new ideas. 

Twelve of the 13 additions came from these types of funds, and the sole added equity fund, Matthews Asia ESG, has a specific focus. The list saw its first Prospect graduate to having full coverage with a Morningstar Analyst Rating™ of Gold. 

The Morningstar Prospects list features what we believe to be hidden gems and promising strategies that fall under one of several headings: under-the-radar managers, new funds run by experienced managers, or a unique investment process. You can learn more about the history and structure of the list in our previous blog post, “Morningstar Prospects: What New Investment Strategies Made the List?” 

Learn more about key inclusions in the June 2019 report below. 

Notable movements in the June 2019 Morningstar Prospects list 

The list’s additions, graduates, and drops spanned asset classes, categories, and investment vehicles. Examples of changes include:

  • JPMorgan SmartRetirement Blend Target-Date Fund Series graduated with a Morningstar Analyst Rating of Gold, due to its strong management team and thoughtful asset-allocation process.
  • GQG Partners Emerging Markets Equity (GQGIX), which features a forward-thinking manager and charges reasonable fees, graduated with a Morningstar Analyst Rating of Silver.
  • Matthews Asia ESG (MASGX), which is a sensible sustainable offering from a heralded, Asia-focused investment firm, was added to the list.
  • Baird Ultra Short Bond (BUBIX), which follows a similar process to the Silver-rated Baird Short Term Bond, was added to the list.
  • Invesco S&P 500 Revenue ETF (RWL) was dropped from the list, as it is more expensive than peers and hasn’t distinguished itself.

The Morningstar Prospects list throughout the years 

Since the publication’s launch in 2014 through this June 2019 report, 77 strategies have graduated from the list and 34 have been dropped.  

Of the 77 graduated strategies, one target-date series received a Morningstar Analyst Rating of Gold, 19 held Silver, 40 held Bronze, six held Neutral, and one held Negative. Ten graduates were dropped from coverage. 

Fund case study: Aperture New World Opportunities 

One noteworthy addition to the Morningstar Prospects list is Aperture New World Opportunities. 

Peter Kraus, former CEO of AllianceBernstein, worked with Generali to found Aperture Investors in 2018. The group was based on the guiding principle that performance-linked fee structures better align manager incentives with those of fundholders.  

Aperture New World Opportunities (ANWOX), the firm’s inaugural fund, launched in March 2019. The fund’s annual management fee 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 (the midpoint from which the fee is calculated for the year to date) is expensive compared with other emerging-markets bond options, where the typical no-load fund charges 92 basis points. Still, this performance-linked pricing is an intriguing feature of the fund.    

The lead manager at Aperture New World Opportunities is Peter Marber. He ran a few open-end 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 category, this one is primarily focused on hard-currency-denominated sovereign bonds and corporate bonds, but it is one of just a handful focused on shorter-dated debt (hence the unique benchmark). While those traits can sometimes signal a tamer offering, this fund will also own a smattering of local currency debt and frontier-markets exposure (Zambia, Kazakhstan, and Mongolia, for example), as well as a low single-digit emerging-markets equity stake.   

The value of the Morningstar Prospects list 

This list allows Morningstar’s manager research analysts to share what we believe are promising and under-the-radar investment strategies. We host thousands of manager meetings across the globe each year to identify strategies that may deserve a wider audience and, eventually, full Morningstar Analyst coverage. 

The Morningstar Prospects list is published semiannually, and the next installment will be released in January 2020. 

The full list and publication are available in Morningstar Direct℠ Research Portal. If you’re a user, you have access. If not, take a free trial

To learn more, download Morningstar Prospects.

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The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. 

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