Morningstar has released a new report detailing its upgrades and downgrades for Australian equities strategies over the past year.
The firm said it had conducted qualitative research assessments on 78 large-cap equities strategies and 32 small-cap strategies between 1 December 2020 and 30 November 2021, including 85 unlisted trusts, 18 ETFs and seven listed investment companies.
“We downgraded six unlisted funds owing to reduced confidence in the investment team, diminished conviction in the investment processes, or lower assessment under our enhanced ratings system because of expensive fees,” said Morningstar.
This included the $1.19 billion Fidelity Future Leaders fund, which was downgraded from a gold rating to silver.
“This remains a strong option, but the increasing distraction of a global version of the strategy co-managed by James Abela dents our absolute confidence,” said Morningstar.
The Australian Ethical Australian Share Wholesale fund also received a downgrade with Morningstar reducing its rating from bronze to neutral.
“This strategy has sound characteristics including an experienced senior investment team, a detailed investment process and strong ethical methodology, but rapid funds under management growth and a tail of illiquid positions in the portfolio gives us pause,” said Morningstar.
Downgrades were also handed out to the Eley Griffiths Group Small Companies fund, the Investors Mutual Equity Income fund, the NovaPort Smaller Companies fund and the Pendal Smaller Companies fund.
“We take a medium- to long-term outlook when determining qualitative recommendations,” explained Morningstar.
“Our views about the merits of investment strategies move over time based on manager-specific factors, including investment-team composition, changes to the investment process, pricing, and our degree of relative conviction.”
Meanwhile, the firm said it had upgraded 12 unlisted funds due to “increased conviction in their investment teams, research capability and investment processes or stronger assessment under our enhanced ratings system because of lower fees”.
The FSI Wholesale Geared Share fund, with a fund size of $4.39 billion according to Morningstar, received an upgrade from neutral to bronze due to greater conviction in its key investment process.
The $3.48 billion Dimensional Australian Core Equity Trust was upgraded from bronze to silver due to increased conviction driven by the strategy’s key features including “robust process, expert execution, and an extremely competitive price”.
Two additional strategies offered by these firms, the FSI Wholesale Australian Small Companies fund and the Dimensional Australian Value Trust, were also upgraded.
Perpetual also received two upgrades for its Wholesale Industrial and Wholesale Ethical funds.
Funds that received upgrades from Morningstar included:
- Alphinity Concentrated Australian Share
- Celeste Australian Small Companies
- Fairview Equity Partners Emerging Companies
- Pendal Focus Australian Share
- Pengana Emerging Companies
- Tyndall Australian Share Income
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
