group loses aa ratings on funds after poor performance over the past three years
Fidelity's £343m International and £497m Managed International funds have both lost their Standard and Poor's AA ratings after poor performance over the past three years.
Both managed by Richard Habermann out of Boston, International is ranked 77 and Managed International is 113 out of 132 in the Global Growth peer group, with respective offer to bid returns of -42.8% and -48.9% over three years to 18 August
In S&P's latest review of its Global Equities sector, the group said the inability to deal with this underperformance calls into question the credibility of the investment process on the two Fidelity portfolios.
The agency has also downgraded Fidelity's offshore World Fund managed by Richard Skelt from AA to A in light of concerns about the investment process, despite the fund's relative outperformance due to its Europe bias.
Other funds suffering downgrades in the review were the Goldman Sachs Global Equity Portfolio, dropping from AA to A, and the Morley Sustainable Future Global Growth fund, which loses its A (New) rating.
Two funds enjoyed an upgrade as a result of the latest review, namely Gary Potter and Robert Burdett's Credit Suisse Multi-Manager Constellation Portfolio and John Chatfeild-Robert's Jupiter Merlin Worldwide Portfolio, both rising from A to AA.
S&P said the Credit Suisse fund benefits from the lengthy experience of Potter and Burdett, who have established a successful system blending investment styles, while the experienced team running the Jupiter portfolio have generated consistently above-median performance through their thoughtful process.
Among the funds currently under review are Investec's Global Free Enterprise and offshore Global Strategic Value, both formerly run by Jeremy Podger who left the group to join Threadneedle. Management of the portfolios is to pass to Nick Mottram and as the portfolios are being run outside Investec's mainstream process, S&P plans to keep them under review until it interviews him.
James Tew, director of research at Standard & Poor's fund services, said: 'Out of the many factors influencing fund performance, currency has had the most pronounced effect on relative returns over the period under review.
'The dramatic shift in the euro/dollar exchange rate in favour of the European currency has benefited those funds with biases to Europe, as well as those that hedged their dollar, yen and sterling exposure into the euro. A number of Eurozone-based managers, such as DWS Investment and Universal Investment, successfully adopted the latter strategy.'
In terms of general analysis of the Global Equities sector, Tew said renewed optimism, albeit guarded, on the direction of the markets may be one of several factors leading many managers to maintain fully-invested portfolios.
'The modest optimism is also reflected in the greater willingness of many managers reviewed to take on more risk. Reflecting this more confident mood, the average tracking error for global equity funds covered has been edging up slightly in recent months, with the typical fund moving from 4%-5% against the index towards 5%-6%,' he added.
In terms of style, Tew found value managers fared particularly well during the market upswing, helped by the strong outperformance of financials and cyclicals since late March 2003.
S&P's Global Equities sector reviews a total of 100 funds, 94 mainstream and seven smaller companies portfolios. With the mainstream funds, nine were AAA rated, 31 AA and 43 A. Five funds are not rated and six currently under review following fund manager changes.
Within the smaller companies section, three of the portfolios are AA and four A rated.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation