Whatever investment goal or style you have in mind, there is probably a managed fund crafted with you in mind.

Today’s article takes a tour of four Gold Medal rated funds operating in very different pockets of the global equity market. More specifically, we’ll be looking at share ideas that appear to have the seal of approval from these highly rated managers and our team of analysts.

I’ve explained the criteria I used to find the funds and stocks mentioned below. You will also find an explainer of terms used in this article (such as Moat Rating, Fair Value and Uncertainty Rating) at the bottom of this page.

Criteria 1: Gold Medalist funds

Morningstar’s Medalist ratings indicate which funds and ETFs Morningstar believes are likely to outperform a relevant index or peer group over time. Funds and ETFs are evaluated on three key pillars: People, Parent, and Process.

These evaluations are coupled with a fee assessment before being ranked against other funds in the same Morningstar Category, which represents funds and ETFs that follow similar investment strategies.

Criteria 2: Four or five-star stocks

A five-star rating means our analysts think that a stock is trading at an attractive discount to our fair value estimate. These shares may represent an opportunity if they align to your investment strategy. A four-star rating is also deemed as undervalued but with less margin of safety.

I wanted these stocks to be in the fund’s top ten holdings as per the latest Morningstar data. While these positions may have fallen in value or been sold since then, it still demonstrates recent conviction.

The first pick comes from Capital Group’s World Div Growers. This fund seeks companies with the potential to – you guessed it – provide a growing stream of dividend income.

Morningstar’s Gold Medal rating for this fund stems from its “sensible investment strategy” and the long tenure of its investment team. The strategy leans toward smaller, deeper value companies compared with its average peer in the Equity World Large Blend Morningstar Category.

As of May 31, the portfolio was overweight in utilities and real estate versus peers and underweight technology and communication services. It is also less concentrated in its top 10 fund holdings than the peer group average. The fund’s biggest holding on that date was Taiwan Semiconductor, or TSMC, which was held through both the company’s home listing (TAI: 2330) and the US-listed ADR (NYS: TSM).

It isn’t hard to see why TSMC would interest this fund. TSMC’s total dividends in the past twelve months are more than five times higher than the total amount paid in 2014. Our analysts also like the shares at current levels.

Taiwan Semiconductor Manufacturing Company ★★★★★

TSMC is the world’s largest dedicated contract chip manufacturer, or foundry, with over 60% market share. It makes integrated circuits for customers based on their proprietary IC designs. The firm has long benefited from semiconductor firms around the globe transitioning from integrated device manufacturers to fabless designers. TSMC, like all foundries, assumes the costs and capital expenditures of running factories amid a highly cyclical market for its customers.

Morningstar’s Phelix Lee notes two long-term growth factors for TSMC. First, the consolidation of semiconductor firms is expected to create demand for integrated systems made with the most advanced nodes. TSMC has a leading position in advanced nodes and Lee sees this as a key source of the firm’s Wide Moat rating. Node advancement has become more technical and more expensive, prompting some smaller players to give up on their pursuit of the industry leaders.

Second, organic growth of artificial intelligence, Internet of Things, and high-performance computing applications may last for decades, leading to demand for more advanced semiconductors in higher quantities. Stronger artificial intelligence demand and the potential for TSMC to charge higher prices were behind Lee’s recent upgrade of her Fair Value estimate for TSMC’s shares.

Lee upgraded her estimate to TWD 1,380 per share from TWD 950 on June 24th, noting the potential for TSCM’s revenue to grow faster thanks to AI-related demand and price hikes. She also thinks that TSMC’s efforts to diversify its manufacturing base away from Taiwan – most notably through new plants in the US – could see its cost of capital fall. Lee attaches an Uncertainty Rating of Medium to her valuation. This stems from TSMC operating in the cyclical semiconductor industry. The company also derives a high percentage of revenue from a small number of major customers.

The next pick comes from Hyperion Small Growth Companies. Unlike the previous fund, this offering from Hyperion focuses purely on the Australian market. The strategy has posted strong returns for investors over the past five and ten years relative to its peer group and Australian market averages.

Our manager research team rate this fund as one of the top options for Australian investors seeking small-cap growth exposure. This reflects our research team’s high regard for Hyperion’s deep and differentiated research and genuine long-term time horizon.

The strategy has a strong growth bias and the portfolio can look expensive on near-term price/earnings valuation metrics. However, our analysts note Hyperion’s ability to find businesses that have genuine long-term competitive advantages that can grow into large total addressable markets.

Hyperion has also shown a willingness to look past short-term trading or share price weakness and exercise patience with its holdings. It's hard to find a stock meeting more of those criteria than Domino’s Pizza Enterprises (ASX: DMP).

Domino’s Pizza Enterprises ★★★★

Domino's Pizza Enterprises is the Australian master licence holder of the Domino's Pizza brand. It also has operations in New Zealand, Japan, Singapore, Malaysia, France, Germany, Belgium, Luxembourg, Taiwan, Cambodia, and the Netherlands.

As a master franchisee, Domino's has limited capital requirements, which means royalty payments it receives in the future should continue to be paid as partially franked dividends. This makes returns on invested capital very attractive and has traditionally led to a rich P/E ratio, which currently stands at over 56 times last year’s earnings.

Domino’s shares have endured a torrid run stretching back to 2021. As well as concerns about a weaker consumer, cost pressures have squeezed profitability across the food service business. This has reduced profits for Domino’s franchisees and led to slower store openings. It has also eaten into profits at company owned locations, which make up around a quarter of the firm’s total store network.

Despite this bump in the road, Morningstar’s Johannes Faul thinks Dominos can still increase its Australian store base by about one third in the next few years. The growth opportunity in its European markets looks more substantial, with the potential to more than double its existing store base to around 2,900 outlets during the next decade. Thanks to the attractive economics of franchising, this could result in materially higher earnings down the road. Faul thinks the shares have a fair value of $61 versus a price of around $38 today. He attached an Uncertainty rating of high to that valuation given Domino’s fundamental exposure to the economy and economic cycles.

Domino’s Narrow Moat rating stems from very strong global brand recognition, other intangible assets and cost advantages versus smaller operations. In addition to its brand, Domino’s has highly valuable intangible assets in the form of internally generated intellectual property. The firm is a leader in restaurant logistics and has developed technology tools that build and maintain customer engagement and loyalty. Faul thinks its investments in streamlining its cooking and fulfilment process makes it the "go-to" location for individuals who covet the fastest and most reliable service.

Our next fund, Schroders Australian Equity, operates in the same market as Hyperion but in a very different way. Instead of purely focusing on companies with high growth potential, Martin Conlon and his team are far more valuation sensitive. Yet while Schroders can be described as having a long-term value focus, our team do note that quality metrics like return on invested capital and low financial leverage also come through in the overall portfolio. As of May 31, the fund’s top ten holdings included a position in the four star rated Telstra (ASX: TLS).

Telstra ★★★★

Telstra is Australia’s largest telecoms provider and enjoys dominant market share in all of its key business segments, most notably mobile and broadband for business and domestic use.

Morningstar’s Brian Han thinks that Telstra’s scale means it has a good chance of maintaining or improving its competitive position through technology upgrades, marketing and content rights bidding. This is because any spending in these areas could be spread over a larger customer base, thereby, reducing per-subscriber costs and placing Telstra in a superior position against competitors.

The capital costs required for a new entrant to replicate even a small part of Telstra’s telecoms infrastructure ownership, scale and brand power would also be prohibitive. The attraction of making these investments is reduced further by the fact that Australia’s telecom industry is relatively small and mature.

Telstra has been in the headlines recently after announcing fresh lay-offs as part of management’s efforts to cut a further $500m in costs. Han thinks this increased focus on cost-cutting reflects fading hopes of stopping the revenue decline of legacy products in data/connectivity and network-attached storage.

He is more positive on the outlook for Telstra’s mobile division, which he thinks can post mid-single digit revenue growth for the next few years. Han thinks Telstra shares are worth $4.50 a share compared to current market prices of around $3.60 and assigns an Uncertainty rating of Medium to this valuation. He notes the telecoms sector’s relatively low cyclicality as a positive.

Our final pick come from MFS, a Boston-based manager famous for inventing the mutual fund in the 1920s. Morningstar’s manager research team thinks there is a lot to like about MFS’s Global Equity Trust, most notably its patient approach to applying MFS’s time-trodden investment process. Co-managers Roger Morley and Ryan McAllister uphold the fund’s long-standing tradition of investing in reasonably priced companies with a steady growth outlook.

At the end of the first quarter the fund’s top ten holdings included Comcast (NAS: CMCSA), which also commands a 5-star Morningstar rating at the moment.

Comcast ★★★★★

Comcast is a leading cable TV, broadband and television provider in the United States. Comcast’s cable business has steadily gained broadband market share over the past 20 years as high-quality internet access has become a staple utility. Morningstar’s Michael Hodel estimates the firm has increased broadband market share in the areas it serves to about 65% from 50% a decade prior, meaning Comcast’s customer base in the typical market area is twice the size of its rivals’.

Comcast’s Wide Moat rating stems from advantages in its core cable and broadband business. The cost to enter this market is enormous. While technological developments have made it possible to build more efficient and reliable networks, deploying these technologies still requires heavy construction spending, while also overcoming the regulatory hurdles that municipalities often impose. Assuming successful network construction, entrants then face steep customer acquisition costs and startup losses as they attempt to gain share, typically with a modestly differentiated product in a rapidly maturing market.

Comcast’s television business is home to major US television network NBC and its Peacock streaming service, the Sky pay TV business, Universal movie hits like Jurassic Park and Despicable Me, and theme park assets related to those and several other franchises. Hodel sees this segment as having less durable advantages than the cable business but thinks it would deserve a Narrow Moat rating due to intangible assets.

Hodel’s USD 56 per share fair value estimate compares to a price of around $38 today. At the group level, he expects only modest revenue growth over the next several years as the declining traditional TV business largely offsets modest broadband customer gains, Peacock adoption, and expansion of the theme parks. Hodel has assigned an Uncertainty rating of Medium to his valuation, noting that broadband’s status as a public necessity brings plenty of regulatory scrutiny with it. While technological obsolescence is always a risk, he doesn’t expect that the 5G networks being built out by phone firms will radically alter the in-home internet access market.

His key overarching assumption is that Comcast maintains its position as a dominant internet access provider in most markets it serves, providing a solid foundation for the firm to build customer relationships and benefit from strong pricing power.

With a network that can be upgraded at modest incremental cost, Hodel expects that Comcast will remain the dominant broadband provider in many parts of the country and compete well in areas where the phone companies are building fibre networks. He also thinks that capacity limitations will ultimately constrain the number of broadband customers that fixed wireless carriers can serve. Any evidence of this could improve sentiment towards Comcast shares, which have been weighed down by strong subscriber growth numbers for prominent wireless providers like T-Mobile US.

Before you get to choosing funds or stock investments, we recommend you form a deliberate investing strategy. You can read more about how to do this here.

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.