Welcome to Morningstar. I'm Holly Black. With me is Jeffrey Schumacher. He is a
fund analyst at Morningstar in the Netherlands. Hello.
Hi, Holly. Good afternoon. So, Jeffrey, you recently launched
the Morningstar Prospects list for EMEA and Asia. Can you tell us what this report is about please?
Yes, absolutely. So, the Morningstar Prospects list is a semi-annual listing of promising
actively managed strategies that we believe deserve greater investor attention, but that
are not yet covered by Morningstar's Manager Research team. So, over the past 12 months,
we have spoken to about 70 portfolio managers or funds that we currently do not cover
and actually some of them have made it into the most recent edition of the prospect list.
Okay. So, how many funds are on this edition of the Prospects list?
Yes. So, in this 8th edition of the Prospects list, we present 37 strategies that we think have
merit and are worth investors' consideration. So, compared to the previous edition, we have removed
18 strategies from the list for several reasons. Some of the funds that were on the list, we have
been monitoring them for quite a while and arrived at the conclusion that they don't have enough
merits to consider full coverage. But some of them were dropped because of an event like manager
departure or a team restructuring or liquidation. Still, we managed to graduate two funds from the
Prospects list over the past six months, both strategies earning a medalist rating. And in the
first half of 2021, we will graduate two other strategies from the Prospects list as well.
Okay. So, one of the funds that has graduated or been promoted on from the Prospects list to
manager coverage is the PGIM Broad US High yield Fund. Can you tell us a bit more about that one?
Yeah, for sure. So, yeah, we really think that PGIM Broad Market U.S. High Yield is a
very interesting strategy basically because we think that it's very hard for peers to compete
with this strategy's resources and effectiveness. So, we really think highly of PGIM's credit team.
Its global team consists of more than 30 people. Most of them have multiple decades of experience
and this combined with a strategy that is well-designed, is quite thorough and also
very effective. It really gives the fund an edge to outperform. So, that results in people
pillar score and the process pillar score of high, leading to a Morningstar Analyst Rating
of Gold for its cheaper share classes and Silver for the more expensive share classes.
Okay. So, if we go back to the current Prospects list, what are a couple of the
funds that have joined that this time round? Yeah. So, over the past six months, we have
added six new strategies to the list and two of them are actually sustainable strategies. So, the
first one is BNY Mellon Sustainable Real Return Fund. And this is actually a sustainable version
of Newton's longstanding Real Return flagship fund. So, that strategy actually currently has a
Morningstar Analyst Rating of Bronze with above average conviction on both people and process.
The second strategy is Liontrust Sustainable Future UK Growth, which is managed by longstanding
portfolio manager Peter Michaelis. Apart from a manager departure last year when Neil Brown left,
the team around him has been quite stable actually, and the members have been working
together for quite a long period already. We're also positive about the process. We think it's
distinctive, sensible and quite robust as well. Okay. So, what will it take for funds like this
to go from being on the Prospects list and potentially interesting
to graduating and getting an analyst rating? Yeah. So, there are several factors actually that
play a role in that decision. For example, client demands or the quality of the funds that we cover
within a certain category. But I would say above all it's really about the analysts' conviction
in a strategy's ability to generate alpha net of fees versus the category index over a full market
cycle. So, we really need to gain that conviction in the team that is managing the product,
of course, but also, we need to be convinced of the approach, the investment philosophy,
the investment process and we try to gain that conviction in the various meetings that we have
with the portfolio managers before considering a strategy to graduate it to full coverage.
Jeffrey, thank you so much for your time. For Morningstar, I'm Holly Black.