Morningstar Prospects is a list of up-and-coming or under-the-radar investment strategies that Morningstar Manager Research may someday bring under full coverage. We recently added a trio of new stock funds to the list.
Dodge & Cox Emerging Markets Stock DODEX has some hallmarks of a Dodge & Cox strategy, but it ventures into new territory. The mutual fund, launched in May 2021, adopts the firm’s prudent investment committee structure. The strategy also draws upon a proven, valuation-driven approach that has produced solid emerging-markets picks for Dodge & Cox International Stock DODFX. Unlike the firm’s other offerings, however, this one relies on a quantitative model to find attractive stocks. The firm’s vaunted analyst team doesn’t dive deeply into the model’s recommendations; it simply checks if those stocks meet the team’s expectations for valuation, management, and business prospects. The resulting portfolio has 200-plus holdings, much more than the typical Dodge & Cox equity strategy. It is worth watching how Dodge & Cox handles its new quant tool and its effect on analysts’ workloads, but the firm has had success with every fund launched in its 91-year history. Investors are paying a fair price as the fund gets going: Like all Dodge & Cox mutual funds, its expense ratio lands in its peer group’s cheapest quartile.
Thomas Levering maintains a compact portfolio of relatively stable, structurally advantaged infrastructure companies as a subadvisor for John Hancock Infrastructure JEEIX. Prior to this fund’s inception in December 2013, Levering launched this strategy as a separately managed account at Wellington Management in June 2010. His preference for companies operating in regulated industries with long-term contracted assets has proved to be defensive during periods of market stress, when the strategy tends to significantly outperform the category average. This temperate profile comes despite an above-average allocation in emerging-markets companies, which peers tend to avoid because of higher political and regulatory risks. Levering has specialized in global utilities and energy infrastructure since he joined Wellington in 2000. He is also the manager of Silver-rated Vanguard Energy VGENX, a role he has held since early 2020.
Morgan Stanley Developing Opportunity MDOEX has a strong pedigree. Launched in February 2020, the strategy comes off manager Kristian Heugh’s tremendous success with his flagship Morgan Stanley Global Opportunity MGGIX. This strategy leverages Heugh’s characteristic enterprising approach. Heugh is an unabashed growth investor, targeting firms capable of capturing large addressable markets with sustainable, organic revenue growth and high-margin business models. As such, he tends to tread lightly in industries that require significant capital expenditures, instead focusing on the consumers, technology, and financials sectors. Heugh has long been an investor in Chinese growth companies, and this strategy has also counted heavy exposure to Chinese firms since inception. The strategy’s short life span and differing mandate warrant additional monitoring.
Analyst Nicholas Goralka, associate directors Tony Thomas and Tom Nations, and senior analyst Patricia Oey contributed the research behind this segment.