Which fund houses had the most 5 Crowns stripped?

10 September 2019

Morningstar Investment Management, IOOF Investment Management, Colonial First State, Pengana Capital, Colonial First State Global Asset Management (CFS GAM), and Australian Unity had the most five Crowns downgraded in FE/Fundinfo’s latest Crown Ratings rebalance in August. 

Morningstar lost the most five Crown ratings at seven funds, followed by IOOF at five, CFS at four, and Pengana, CFS GAM, and Australian Unity all at three.

The sector that lost the most amount of five Crowns was mixed asset – growth (at eight funds), followed by global equities (five funds), mixed asset – aggressive (three funds), mixed asset balanced (three funds), and property – global, property Australia listed, and mid-cap global equities, mixed asset – moderate, fixed interest Australian bond, and global hedged equities (one fund each).

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While Morningstar did not respond to Money Management regarding its results, the data found all but one of its downgraded funds were mixed asset funds. 

The fund that was downgraded the most was Morningstar Multi Asset Real Return as it lost four Crowns down to one. 

Over the three years to 30 June, 2019 the fund performed in the bottom quartile against its mixed-asset – aggressive sector peers and was the third worst performer. 

The fund returned 23.8% over this period, compared to the sector average of 32.4% and the best performing fund at 42.3%. 

The fund’s factsheet said: “The risk of permanently losing capital is now significant, leading us to adopt an increasingly cautious position across the portfolio”.

It noted it was holding more cash than usual with an allocation at 23.2%, compared to the sector average of 4.56%, and said it preferred to hold UK, Japanese, and emerging market equities. 

Most of CFS’ five Crown fund downgrades were mixed asset funds, including CFS FirstChoice Wholesale Multi-Index Balanced, CFS Mezzanine FirstChoice Multi-Index Moderate, Milliman Managed Risk Multi-Index High Growth, and CFS Stewart Investors Wholesale Worldwide Leaders

Commenting on the Multi-Index Balanced and Multi-Index Moderate funds, CFS general manager for investments, Scott Tully, said the funds achieved strong, double digit returns over the six months to 30 June, 2019 but “the underlying tilt to value through the funds’ allocations to Realindex Global Share resulted in performance that lagged global indices but this is unsurprising given the strength of US and technology stocks during that period”.

“An overweight to emerging markets is retained in the funds with the expectation that these markets offer the potential for relatively stronger returns in the future.”
Similarly, four of the five IOOF funds that had a five Crown downgrade were mixed asset funds.

The funds were IOOF MultiMix Moderate (balanced), IOOF MultiMix Conservative (moderate), IOOF MultiSeries 70 (growth), Foundation Assertive (growth), and bond fund IOOF Income.

While the multi-asset growth fund, Foundation Assertive, outperformed the sector over the three years to 30 June, 2019, and was placed in the top quartile its volatility was at

7.32 compared to the sector average of 5.7, and its maximum drawdown loss was at 10.7%, compared to the sector average loss of 8.6%.

The MultiSeries 70 has had inconsistent returns placing in the second quartile over three years, top quartile over one year, and third quartile over the six months. 

IOOF declined to comment on its fund’s performance but its factsheet said the Australian shares portfolio underperformed its benchmark, partly due to small caps underperforming the broader market.

Both IOOF funds only lost one Crown down to four.

All of Pengana’s five Crown downgrades were for funds within the global equity and global small and mid-cap sectors.

The funds in question were Pengana International Ethical Opportunity (down to two Crowns), Pengana High Conviction Equities (down to one Crown), and Pengana Global Small Companies (down to four Crowns).

While Pengana declined to comment, its factsheet for its International Ethical Opportunity fund cited cash as the single largest performance headwind during Q2. It also noted that its underweight exposure to the IT sector was a relative performance headwind. 

The fund’s cash allocation was at 11% and the high conviction equities fund was at 17.2% compared to the global equity sector average allocation of 4%.

Over the three years to 30 June, 2019, the International Equity Opportunity fund returned 40.6%, compared to the sector average of 42.5%. The High Conviction Equities fund returned just 20.3%. 

The high conviction fund’s volatility was also almost double the sector’s (9.58) at 18.06. In terms of maximum drawdown, it captured 20.2% of the downside compared to 13% for the sector average.

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