Global Investment Strategy Update from OBSR

by amcdonald on 21 Apr 2011

OBSR will be sharing its independent views and comments on Global Markets and our Global Investment Strategy.

The second of these webcasts will take place April 21st 2011 at 15:00 GMT.  It is scheduled to run for 30 minutes including time for Q&As and the presentation will be available on replay.

Peter Toogood, OBSR Investment Services Director, will cover the following points:

  • Credit markets remain stable.  A positive sign.
  • Equity valuations still highly supportive
  • Start of year euphoria now faded. Another good sign.

To register for the webcast, click here.

Posted in: Morningstar OBSR Commentary,

Quick Tip: Document Library

by jmurphy on 12 Apr 2011

If you ever need to gather fund fact sheets, annual reports or fund prospectuses from the websites of asset managers, you can now gather these documents in Adviser Workstation. In the Research area, just select the fund for which you need the fact sheet/annual report/prospectus and click on the Action button. Then click on “Document Library.” This will give you PDF versions of the latest documents Morningstar has collected from the asset manager.

If you work with direct equities you’ll find a wide range of publicly available documents for each company – again, in Research, select the stock, click on the Action button, then “Document Library.” Here you’ll find quarterly and annual reports, announcements, proxy statements and insider activities.

Happy searching!

Posted in: Quick Tips,

Closed-end Funds – The Mechanics of Investing

by jmurphy on 04 Apr 2011

Title: Closed-end Funds – The Mechanics of Investing
Location: online
Link out: Click here
Description: While closed-end funds, in the form of investment trusts, were the grandfather of professional investment management, the open ended fund has grown to dominate the diversified investment product market. Yet last year was a bumper one for new investment trust launches with both costs and performance appearing to favour the closed-end market.

But investment trusts have largely been ignored by an adviser market locked into remuneration patterns difficult to replicate through the investment trust structure, while access to their shares has also proved a stumbling block. All this seems set to change with RDR demanding a wider understanding of the investment opportunities available to clients and platforms increasingly willing to facilitate dealing in the shares of investment trusts.

We will be looking at how you can use closed-end funds to the benefit of your clients and endeavour to demystify the issues surrounding access to this long established and potentially rewarding investment vehicle so that they may be properly considered alongside more traditional options.

Start Time: 13:00
Date: 2011-04-13
End Time: 14:00

Posted in: Morningstar,

How-To Video: Investment Plan

by jmurphy on 01 Apr 2011

This video shows the investment planning tool within Adviser Workstation and explains how to create a plan and generate a report for a client. Use this area of the system to asses a client’s attitude to risk, determine an appropriate asset allocation, recommend an appropriate portfolio of investments and produce a wealth forecast. Click here to view the video.

Posted in: Training Videos,

Observing Stock Research

by amcdonald on 28 Mar 2011

I have long held the view that an analyst’s experience of researching funds would benefit significantly if it were complemented by ‘bottom-up’ research in action – namely, watching fund managers conduct company meetings, understanding how they interact with companies and hearing their views immediately following these visits and then spending time experiencing their network of contacts, including companies, brokers etc. This was confirmed and validated by my recent trip to Asia in the company of Neptune, providing one of the most interesting and insightful experiences I have had to date.

It was fascinating to witness the lines of questioning by Neptune in different meetings and to hear them summarise their views afterwards.  Their objectives for such a trip were clear: in the first instance, to meet with the companies they are invested in to verify that their investment thesis remains intact.  In addition to this, they look to hold meetings with potential investment opportunities and to use meetings with other companies and contacts to verify their top-down views for the region and the various sectors of the market.  These goals were handsomely met during the visit and it was perhaps especially instructive to hear their thoughts on stocks they don’t own and are unlikely to do so, with a number of softer issues being of some concern to them at times.

Thinking about top-down themes in China, one theme from all companies, when asked about cost pressures, was increasing wage costs.  This ties into the authorities’ aim of raising the consumption share of the economy, as the wage share of national income in China is significantly less than in many other countries.  The desire to reduce levels of inequality in the country, which have apparently risen substantially since 1980, is also focused on the significant geographical disparities through projects such as improving and installing infrastructure – this requires investors to reconsider the impact of companies’ geographical locations.

To join the conversation on the OBSR blog, click here.

By Ruli Viljoen

Posted in: Morningstar OBSR Commentary,

No Need to Panic-Sell Japan Equity Investment Trusts

by jbeard on 18 Mar 2011

In the wake of the crisis hitting Japan this week, we take a look at the Japanese closed-end funds sector to see how the funds are responding.
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There are just eight dedicated Japanese equity closed-end funds, of which six are biased towards smaller companies, an area of the market that’s been hit particularly hard in the last few days. Yesterday alone saw the TSE 1 Small fall more than 10%. Add to that the fact that all six smaller-companies funds are geared to some extent and it doesn’t sound like it will paint a pretty picture.

But a look at the CEFs’ discounts, as shown in Table 1 below, suggests the recent falls haven’t made them screamingly cheap. Only three funds are trading at discounts greater than their three-year average and all are well above their discount levels from six months ago.

That’s not the whole picture, though. We need to look at how their NAVs have been affected by the market turmoil. It’s no good just looking at the level of absolute discount; relative discounts matter. After all, there’s no guarantee the NAV will be less affected than the share price.

We can see in Table 2 below, though, that NAVs have held up marginally better than the share prices, albeit everything has headed south. What’s encouraging is that we’re not seeing panic-selling driving the share prices down at a rate faster than the Japanese market, adding further credence to our view above.

We should also look at gearing in the funds as this has an impact, too. The highest geared fund is Baillie Gifford Japan (BGFD) at 23% net gearing. Some way behind this is Baillie Gifford’s smaller companies fund, Shin Nippon (BGS), and JPMorgan Japan Smaller Companies (JPS) at 17%. While the two Baillie Gifford funds are long-standing fans of gearing, with it in place as a matter of course, the managers at JPS only brought gearing back into the fund in January this year, having taken it off in July 2010.

As yet, the gearing hasn’t had a significantly detrimental effect on these funds. However, it’s way too early to tell if this can last and the full impact of the quake and tsunami is far from clear yet.

What we do know is that these funds are weathering the storm as well as can be expected, for now, and there’s no reason for investors to panic-sell.

Posted in: Research,

Some Thoughts on Fund Transparency

by jmurphy on 15 Mar 2011

How much detail do you need to know about the investment products you recommend? Do the prospectus of a fund and an updated provider fact sheet provide sufficient insight or do you need to dissect it further? As products become more and more specialized a more in-depth analysis of the fund and how it’s invested can help ensure it’s the right fit for the client or the portfolio in question.

I think it is suprising that we live in the information age yet basic information for some investment products is either difficult to come by or even withheld altogether from investors and their advisers. Does the transparency of a fund play into your decision to recommend it to a client? Many advisers have demanded greater transparency from asset managers, platforms, regulators and insurance companies, but unfortunately it seems some people evolve slower than others.

I have the exact same conversation at least once a month with advisers who are trying to analyze a client’s portfolio but are unable to do so because the asset allocation data Morningstar has, for some products, is incomplete. The first reaction is usually “How could Morningstar not have data for these funds?” The answer, more times than not, is because the fund or insurance company is reluctant to provide the detailed portfolio breakdown. Without this data, a complete analysis of the client’s portfolio cannot be done and the adviser’s ability to accurately advise on the client’s assets is limited to the published top ten holdings. Furthermore, an analysis taken from several different sources will include incomparable classifications of sectors and geographic exposures, creating an apples and oranges scenario. And in other cases, when the holdings data of a product is not available, some providers will use the sector average as a proxy, which is can be inaccurate as well as misleading.

So why would the full holdings (asset allocation) of an investment product be withheld from those in need of such information? Some do not feel the need to report such detailed information. With the vast majority of asset managers reporting their full holdings though, this just displays a limited number resistant to such positive change. And this is becoming more and more unacceptable to a growing community of advisers and investors that value independent, in-depth analysis.

Unfortunately, it can also be a commercial decision to not disclose full holdings data. Preferred relationships may stand in the way of working with other data or research vendors, which is a shame because the end investor couldn’t care less about such arrangements.

I would argue it is ultimately in the best interest of the product provider to provide such data because so many other product providers already do. If you’re comparing two funds and you have a full breakdown of the assets of one fund and nothing for the other, how could you possibly make an informed decision and choose the one with no data? And that’s not to mention the number of ETFs that publish portfolio holdings on a daily basis. If I’m an investor, or perhaps more importantly an adviser, transparency and disclosure of information are important factors when choosing where to put my (clients’) money – just ask Bernie Madoff’s investors.

Posted in: IFA News and Commentary,

And the Winners Are:

by jmurphy on 07 Mar 2011

Morningstar handed out its annual fund awards last week – congratulations to the winners! A quantitative methodology was used to screen for the top 10 funds in each category then our analysts chose the winners. Without further ado the winners are listed below:

  • UK Large-Cap Equity Fund: Troy Trojan Income
  • UK Mid-Cap/All-Cap Equity Fund: BlackRock UK Special Situations
  • UK Small-Cap Equity Fund: Standard Life UK Smaller Companies
  • Asia Pacific Equity Fund: First State Asia Pacific Sustainability
  • Global Emerging Markets Equity Fund: First State Global Emerging Markets
  • Europe ex-UK Large-Cap Equity Fund: CF Odey Continental European
  • Europe Large-Cap Equity Fund: Threadneedle Pan European
  • Global Large-Cap Equity Fund: Ecclesiastical Amity International
  • GBP Corporate Bond Fund: M&G Strategic Corporate Bond
  • US Large-Cap Equity Fund: Smith & Williamson North American Trust
  • Specialist Equity Fund House: MFS Investment Management
  • Specialist Fixed Interest Fund House: M&G Investments
  • Multi-Asset Fund House: Threadneedle Investments
  • Large Equity Fund House: First State Investments
  • Large Fixed Interest Fund House: Allianz Global Investors

For a breakdown of the methodology used to pick the winners, click here.

Posted in: Morningstar,

Morningstar UK Fund Awards

by jmurphy on 03 Mar 2011

Today, March 3rd, 2011 Morningstar will be presenting its 2011 fund awards to fund managers and representatives of fund houses that have exhibited exceptional value to investors over the last 12 months. Morningstar is of course not alone in handing out fund awards so I thought it might be useful to examine what fund awards really mean.

It is awards season and there will be no shortage of press in the coming months about this fund winning that award and this fund house being recognized, but I think it’s worth looking at awards a little closer to see if they can actually give investors something worth thinking about.

Some awards are popularity contests – the same groups of managers win every year and the same fund houses are recognized for their perceived qualities. The judging process for these awards is not always 100% transparent either so while they may recognize popular funds or those that attracted large sums over the last year, these are not always the same as the best funds for investors. The time period over which a fund is judged may vary as well, possibly rewarding a big bet, while not considering a longer track record that is possibly more important for investors.

So in the spirit of transparency and with the intention of providing something valuable to investors, Morningstar’s awards methodology is summarized below:

  • There are 2 categories of awards – 1 for funds within Morningstar Categories, and 1 for fund houses.
  • For the Morningstar category awards, a quantitative screen is done looking at both performance and volatility over the last 1, 3 and 5 year periods with an emphasis on the last 12 months because the awards are given annually.
  • The top 10 funds within each category are then vetted by Morningstar fund analysts who look at  investor accessibility, the accuracy of a fund’s stated mandate and if that fund can continue to outperform.
  • For the fund house awards, Morningstar Risk-Adjusted Return (MRAR) is calculated for all share classes of all funds offered then a mean percentile rank is calculated using the MRAR of all share classes – the lower the mean percentile rank, the better the performance
  • This mean score is then adjusted using a probability function to compensate for the different numbers of funds various fund houses offer.
  • A qualitative review is then carried out to to ensure awards are not given purely based on performance. A loss of key talent, an increase in fees or decreased availability to retail investors may disqualify a fund house from receiving an award.
  • Only those that provide Morningstar with full portfolio holdings data are considered for awards

A complete explanation of the methodology can be found here.

Check back here next week for a recap of the winners and some pictures of the event.

Posted in: Morningstar,

Some Advice on Social Media

by jmurphy on 28 Feb 2011

My colleague Catherine McEwing, who heads up Morningstar’s European individual software business, recently had some advice to investment professionals looking to use social media as a means of communication in their every-day business. Though not directly aimed at financial advisers, I think she has some very good advice for anyone looking to increase their presence in social media channels. I know this isn’t something at the top of everyone’s mind but it is undeniable that social media will be a factor in business in the future. If you’re curious about how, or interested in exploring your options, have a quick read – Advice: integrating social media and IR – by Catherine McEwing.

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Posted in: IFA News and Commentary,

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