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Promising Investment Strategies From the Morningstar® Prospects List: Year-End 2019

The list highlights new ways to invest in ESG strategies and more

The Morningstar Prospects list had 11 additions, eight graduates, and one drop in the second half of 2019. Morningstar’s manager research analysts cast their nets wide to find new ideas, so additions spanned passively and actively managed equity, fixed income, and allocation strategies. 

These additions have a variety of compelling features, but one notable trend is that several—like a growing number of managers in the industry—incorporate environmental, social, and governance (ESG) criteria into their investment decisions. 

The Morningstar Prospects list features what we believe to be hidden gems and promising investment strategies that fall under one of several headings: 

  • under-the-radar managers 
  • new funds run by experienced managers 
  • unique investment processes 

We took a deeper dive into the history and structure of the list in our previous blog post, “ Morningstar Prospects: How we Curate our List of Promising Investment Strategies.” 

Below, learn more about the new ways to invest highlighted in the  December 2019 report.  

5 noteworthy investment strategies from the December 2019 Morningstar Prospects list

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

  • PIMCO Short Asset Investment( PAIDX) graduated with a Morningstar Analyst Rating™ of Gold, thanks to the high caliber of its well-resourced team, sound approach, and attractive fees. 
  • PGIM Jennison Global Opportunities’( PRJZX) seasoned management, talented analyst bench, and well-executed approach helped its cheapest share classes to graduate with a Silver rating, while its more-expensive shares earned an inaugural rating of Bronze. 
  • Brown Advisory Sustainable Growth ( BIAWX), which offers an effective take on sustainable investing, joined the list. 
  • Chiron Capital Allocation( CCAPX), whose lead manager built an impressive record elsewhere before launching this strategy in 2015, entered the list.
  • Bridge Builder Core Bond ( BBTBX) dropped from the list, as it is available only to Edward Jones Advisory Solutions’ clients. 

What happened to previous investment strategies from the Morningstar Prospects list?

From the publication’s launch in 2014 through this December 2019 report, 85 investment strategies have graduated from the list and 35 have been dropped.   

Of the 85 graduated strategies, three now merit a Morningstar Analyst Rating of Gold, 20 Silver, 43 Bronze, and six Neutral. Thirteen graduates were dropped from coverage. 

Fund case study: Calvert Equity

One noteworthy addition to the Morningstar Prospects list is Calvert Equity, where manager Joe Hudepohl and a small, capable team at subadvisor Atlanta Capital combine an ESG mandate with a growth investing style. 

Calvert analysts define the investable universe by rating companies on financially material ESG factors. Hudepohl and three other managers then search this list for profitable companies with at least a decade of earnings or revenue strength. They build a modest large-cap portfolio of about 50 companies they believe are strong and stable. The quality bent allows the team to be patient—turnover is often low relative to peers—and the portfolio has tended to hold up better in market downturns. 

This approach and performance profile resemble the attractive features of other Atlanta Capital-subadvised funds, such as Bronze-rated Eaton Vance Atlanta Capital Select Equity. 

Meanwhile, Calvert manages a sliver of “impact investments” in the portfolio, including corporate bonds and equities issued by private companies. Though designed to give investors the feeling that they’re making a difference, this tiny sleeve typically holds less than 2% of assets and has little impact on performance. 

Using the Morningstar Prospects list to identify new ways to invest

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 new ways to invest that may deserve a wider audience and, eventually, full Morningstar Analyst coverage.  

For a deeper dive into this group of up-and-coming investment strategies and why they made the list, join our webinar on Thursday, Feb. 13.

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

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

For the full analysis, download the Morningstar Prospects list.
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