Our fund recommendations are drawn from the whole of the market and selected using a two pronged approach with Morningstar’s analyst team providing unbiased in depth research that is analysed by our own Investment Team. We also carry out our own research and all recommendations are presented to and approved by TD Direct Investing’s Investment Committee.
As a result of our collaborative research we sometimes introduce new funds to the list. The new funds are intended to offer more variety in popular asset classes, as well as access to additional asset classes such as emerging market debt which deliver further diversification benefits.
Note: There were no upgrades or downgrades of Morningstar Analyst Ratings over the quarter.
This fund was added as a replacement for Baring Europe Select. The fund was awarded a Bronze Morningstar Analyst Rating in June 2016, and manager Ian Ormiston has more than 20 years’ experience in European equities. Although this fund was only launched in November 2014, Ormiston managed the Ignis European Smaller Companies fund from 2007 to 2014 using the same investment philosophy, outperforming both the index and peer group average over this time. He seeks out company-specific catalysts which will unlock value, preferring to invest once a company has reached profitability and is expanding sales growth. The fund’s bias to quality stocks tends to result in relative outperformance in weaker markets. Morningstar believes Ormiston has demonstrated consistency in the application of his investment approach and a sensible balance to portfolio construction.
The environment for emerging market bonds has improved and yields look attractive compared to developed market government bonds. The relatively low correlation of emerging market bonds to other asset classes offers good diversification properties. The Pictet Global Emerging Debt fund offers a portfolio of bonds primarily from emerging market governments issued in US dollars. The fund aims to outperform the JP Morgan EMBI Global Diversified index by 1% to 3% annually, and the managers enjoy freedom to deviate from the benchmark based on their top-down and bottom-up views. The team, led by Simon Lue-Fong, comprises eight portfolio managers based in London and Singapore. The fund’s flexibility, and its ability to moderate the level of drawdowns versus its peers, mean it is a good emerging market bond option for our Recommended Funds list.
Barings announced in March 2016 it would be soft closing the fund in order to protect the interests of existing investors following a tripling of assets over the last five years to more than £1.5 billion. While it said it could support a higher level of assets it wants to manage further inflows as assets increase. Although the fund will continue to accept investments from existing clients, we respect the manager’s decision to sensibly manage asset levels. We also have a policy of removing funds from our Recommended Funds list when they no longer accept investments from new customers. The fund remains a solid investment for existing investors but for new investors we have replaced the fund with Old Mutual Europe ex UK Smaller Companies.
In July, following heavy levels of selling by holders of commercial property funds, the M&G fund suspended trading in order to protect the interests of the fund’s shareholders. This was done with the intention of allowing the fund manager time to raise cash levels in a controlled manner should any asset disposals be necessary. As a result we removed the fund from our Recommended Funds list as a temporary measure, and this remains the case while the fund is still suspended. We will continue to monitor the situation closely.
Since 4 July 2016 a number of UK commercial property funds have suspended trading and others have announced other measures such as write downs. A suspension of trading means our customers cannot make any new investments or withdraw any assets until the suspension is lifted. Suspension happens in funds with non-liquid assets in times of stress in order to protect the interests of the fund’s shareholders. This should allow the fund manager time to raise cash levels in a controlled manner, ensuring any asset disposals are achieved at reasonable values. Commercial property is typically a less liquid asset class – it takes time to sell commercial property such as office blocks and warehouses.
L&G UK Property, one of the funds on our Recommended Funds list, introduced a fair value adjustment which has subsequently been removed and it remains on the list, as does BlackRock Global Property Securities Equity Tracker. We will continue to monitor the situation but believe commercial property remains a viable investment in the long term as part of a balanced portfolio.
On 3 October Henderson and Janus announced that they intend to merge subject to shareholder and regulatory approval, with a proposed completion date of the second quarter of 2017. The business aims and rationale for combining the two firms are clear, as both have been looking to diversify their product ranges and increase the scope of their distribution. Morningstar is currently happy all Henderson funds continue to be managed by their incumbent managers using their established investment processes, and therefore the Morningstar Analyst Ratings on these funds remain unchanged. Henderson Global Technology, Henderson European Selected Opportunities and Henderson UK Absolute Return are on our Recommended Funds list.
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Investors should be aware that the value of investments can fall as well as rise, you may get back less than you invested. If you are unsure about the suitability of a particular investment you should speak to a suitably qualified financial adviser.