There has been very little in terms of positive news for funds in 2022, so Square Mile handing out three new ratings and reaffirming 10 is something to celebrate.
The lone cloud on the horizon is the Pimco Select UK Income Bond fund, which lost its A rating following “a challenging period of performance in recent years, accompanied by a sizeable decline in assets”, Square Mile said.
Currently weighing in at £104.2m, the fund has been run by co-managers Andrews Balls, Eve Tournier and Ketish Pothalingam since April 2019. It has returned -9.9% and -5% over one and three years, respectively, while its benchmark, the IA Sterling Strategic Bond, posted -8.2% and 0.7% over the same time frames.
Over five years, the Pimco strategy has lost 0.8% whereas its benchmark returned 6.8%.
“While Square Mile’s analysts no longer have sufficient conviction in this fund for it to retain its rating, they continue to believe investors can benefit from Pimco’s impressive fixed income capabilities in various other strategies managed across the business,” the team added.
‘Rare’ decision to retain a rating – at least for now
The departure of a fund manager results in one of three outcomes at Square Mile, research director John Managhan explained to Portfolio Adviser in June.
First, the team would “look to see how material the manager was to the rating”. If it was felt they were “the ultimate driver as to why the fund has that rating”, it would likely be removed.
However, if the fund has a really good co-manager or strong support team in place, “and it’s one of the team replacing the longer-standing outgoing manager, we might put that on the suspended rating”, Monaghan said.
On rare occasions, where the manager is not deemed material to the rating, it is retained.
Two of the strategies which kept their A rating in the latest round up, despite imminent manager departures, were the £235m Gam Star Japan Leaders and the £506.8m Artemis UK Special Situations funds.
Co-manager Reiko Mito is set to join Martin Currie at the end of August after more than a decade at Gam Investments.
Square Mile said: “Whilst this was an unexpected development, and Ms Mito’s departure represents a loss in terms of expertise and resource, the fund’s lead manager and architect of the strategy, Ernst Glanzmann, remains in situ and continues to be ably supported by investment manager Lukas Knueppel.”
Gam intends to replace Mito in the near future and the analysts remain happy with the interim team structure, hence the decision to retain the fund’s A rating.
Over three years, the Gam Star Japan Leaders fund is third quartile, returning 7.3% against the IA Japan’s 10.6%. Over one year it is solidly fourth quartile, returning -13.6%, while its benchmark fell by 3.5%.
Over at Artemis, the departure of the co-manager of its UK Special Situations fund, Derek Stuart, was announced at the end of June. Stuart co-founded Artemis and has managed the fund since inception. He will step back from day-to-day fund management at the end of next year.
“Co-manager Andy Gray, who has been involved with the fund since 2014, remains in situ,” Square Mile noted. “In addition, and as part of the transition planning, Henry Flockhart, previously a fund manager at Aviva Investors and Aberdeen Standard Investments, joined the team in July.”
The analysts said Stuart’s departure “represents a material loss of experience from the fund” and they will meet Flockhart over the coming months to discuss his approach and the future strategy of the fund.
Until that time, its A rating will be retained.
Artemis UK Special Situations experienced a sharp change of fortunes over the past few years, falling from first quartile over three years, returning 18.6%, to third quartile over one, where it lost 8.6%. Its benchmark, IA UK All Companies, returned 8.8% and -4.1% over the same time frames, respectively.
Name changes and fund mergers
Shareholders recently approved the decision to merge the Royal London UK All Share Tracker fund into the Royal London UK Broad Equity Tilt fund. The latter was launched in December 2021 and implements small off-benchmark tilts incorporating responsible investment and ESG insights into its process, while maintaining the same risk and return characteristics of the FTSE All Share.
Square Mile declared the decision “a sensible step”, given the size of the tracker fund has declined over the last nine months.
The remaining seven funds which retained their rating were recently re-named by Columbia Threadneedle Investments. As the strategies were not changed, just their respective monikers, Square Mile opted to reflect that in their ratings.
|Old Fund Name||New Fund Name||Square Mile Rating|
|Threadneedle European Select||CT European Select||A|
|Threadneedle High Yield Bond||CT High Yield Bond||A|
|Threadneedle Managed Equity & Bond||CT Managed Equity & Bond||A|
|Threadneedle Managed Equity Focused||CT Managed Equity Focused||A|
|Threadneedle Managed Equity||CT Managed Equity||A|
|Threadneedle UK Equity Income||CT UK Equity Income||AA|
|Threadneedle UK Social Bond||CT UK Social Bond||Responsible Positive Prospect|
Source: Square Mile