Morningstar joins S&P in placing Souls' funds on 'hold'
Morningstar has placed a ‘hold’ recommendation on Souls Funds Management products following the announcement of the impending resignation of lead portfolio manager Frank Villante — joining researcher S&P in doing so.
Morningstar said investors should “hold off placing new monies” in Souls, of which the Australian Small Companies Fund is the flagship fund, while “we await further developments”, Morningstar said.
“The departure of the highly capable Villante raises a number of questions including whether other analysts will follow Villante,” it said.
Senior Souls analyst Andreas Stephens has also subsequently tendered his resignation.
Morningstar said the most disappointing aspect of Frank Villante’s departure would be the “loss of the person behind the strong performance in recent years".
It said it was "less convinced" about Souls' smaller companies strategy in particular, which produced very healthy results over the year to September 2009 and in the three years to September 30 this year, without Villante.
"The strategy's penchant for micro-caps and a concentrated portfolio comes with heightened market risks, which is why we we're less convinced about the future of this strategy without Villante."
Morningstar’s 'hold' recommendation follows a similar recommendation by Standard & Poor’s (S&P) last month after the announcement of Villante’s resignation.
S&P placed all three Australian equity funds managed by Souls Funds Management on 'hold' — the Souls Australian Equity Fund, the Souls Select Australian Share Fund and the Souls Australian Small Companies Fund.
Souls has advised S&P that it will commence a search to appoint a new small-cap portfolio manager and senior analyst shortly.
Until an appointment has been made, Scott Armstrong will assume the portfolio management position.
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