Promising funds for your watchlist
The latest Morningstar Australia Prospects list contains some interesting strategies including a promising ESG fund and two global growth strategies.
Several promising funds have made the leap from prospects — those that caught analysts’ attention without qualifying for coverage — including strategies from Bell Asset Management and Hyperion Asset Management.
Every six months Morningstar analysts update the Prospects list. Some strategies may graduate to full analyst coverage.
Others won’t make the cut and could be dropped from the list because their fundamentals — the quality of their stocks, performance, fee structures or team — may deteriorate.
The list of potential new additions is compiled by our analysts in the course of their usual funds research. These are sourced in the following ways:
- Coverage requests from clients
- From examining competitors of funds already covered
- Looking at categories that have attracted a lot of investor attention
Morningstar's Three Pillars
The funds are then sifted through Morningstar’s three-pillar framework, where analysts assess their individual Process, People and Parent ratings.
The first of these is built around the analyst’s opinion of the fund’s strategy and whether the management has a competitive advantage enabling it to execute the process and consistently over time. This view is then expressed as High, Above Average, Average, Below Average, or Low.
The People rating zeroes in on the individual personalities running the fund. How talented are they? How long have they been with the manager? How well-resourced is the team? This is then given a rating of either High, Above Average, Average, Below Average, or Low.
The Parent rating considers the quality of the firm’s stewardship, assessing the quality of the asset manager behind the individual strategy. For instance, Morningstar senior manager research analyst Matt Wilkinson assesses the Parent rating of Silver Medallist Hyperion Australian Growth Companies fund by examining Hyperion Asset Management.
The first of the following funds has now graduated from full Morningstar coverage, after earlier gaining the attention of our analysts and making an earlier prospects list.
GQG Partners (43212)
Morningstar Analyst Rating: Silver | Role: Supporting Player | Fund Size: $300m
Morningstar’s Wilkinson describes the fund as a well-considered strategy with an attractive fee and compelling investment proposition.
He notes that the fund’s CIO and portfolio manager Rajiv Thain has a solid track record in local funds management, “looking for companies with strong balance sheets, proven leadership and a history of weathering tough economic conditions.”
In terms of performance, since the fund launched in July 2016 it has performed well. Over 12 months, it has delivered returns of 19.5 per cent versus 11.9 from the benchmark.
“The favoured sectors of financials, healthcare and information technology, have delivered most of the outperformance,” Wilkinson says.
Well-known category leaders like Microsoft, Amazon, Alibaba Group and Deutsche Boerse were among the top contributors.
In the year to end of March — a period when growth and quality stocks outperformed — chipmaker Nvidia, healthcare company AstraZeneca and consumer staple brand Nestle were also sound performers within the GQG portfolio.
A few promising global equity funds have made their way onto the latest prospects list, including an ESG-focused global stock fund and two growth-oriented strategies.
Nanuk New World
Fund Size: $261.7 million
Nanuk New World is an up-and-coming global equities strategy with a unique focus on investing in companies that are contributing to, or benefiting from, the shift towards environmental sustainability and resource efficiency.
Unlike typical ESG strategies, which simply exclude contentious names, Nanuk seeks to actively allocate capital to firms that can deliver positive environmental sustainability outcomes, such as solar panel manufacturers and waste recycling firms.
Exclusions still apply (for fossil fuels, weapons, gambling, and tobacco, for example), but these names typically fall outside of the investment process’ remit.
Nanuk Asset Management was founded in 2009, backed by former head of GMO Australia Paul Chadwick, and Orion Asset Management founder Tim Ryan.
Assets under management are modest but have been gaining momentum. The base annual fee of 1.2 per cent is relatively expensive, but there is noperformance fee.
Baillie Gifford Long Term Global Growth
The strategy is a concentrated global growth strategy with a genuinely long-term investment time horizon.
The team members seek to invest in long-term structural winners that can at least double sales over the next five years and beyond and are less concerned about lofty near-term valuations. They aren’t afraid to back loss-making early stage startups, either, if the addressable market is large enough.
The Australian unit trust was launched in October 2018, but the strategy has been in operation since 2004 and has over AUD 60 billion in assets globally. Notable successful investments since 2004 include Amazon.com, Tencent, and Facebook, while as of March 2020 the portfolio’s holdings included Tesla, Netflix, and Spotify.
The four portfolio managers on the team are seasoned investors with between 18 to 35 years’ experience. They are supported by four analysts and leverage insights from the broader group.
Edinburgh-based Baillie Gifford has a strong investment pedigree, having managed money for clients for more than 100 years and with over $350 billion in firmwide assets under management as of September 2018.
Intermede Global Equities
This global growth strategy is run by UK-based boutique Intermede Investment Partners.
The firm was established in April 2014 by CEO and portfolio manager Barry Dargan and three senior analysts. The philosophy and investment approach have been consistent since Dargan began his portfolio-management career at MFS in 2001.
The team members seek to identify and build a concentrated portfolio of companies they believe are best positioned to generate robust and sustained growth. Although this pursuit may seem trite, what we think sets this strategy apart is the sensible, considered, and detailed approach to fundamental stock analysis. The team owns the majority of the firm, which aligns outcomes with investors. NAB Asset Management has a minority stake and acts as distributor and responsible entity.
The fee is also reasonable at 0.99 per cent, with no performance fee.