By Thomas De Fauw

The Morningstar Awards for Investing Excellence are handed out to those mutual funds that have not only distinguished themselves on the basis of their outstanding historical risk-adjusted returns, but which, in the opinion of Morningstar’s fund analysts, also differentiate themselves from the competition. We expect that their outstanding management team and a proven investment process give these strategies the ability to continue to deliver superior returns versus their category benchmark in the future. The Morningstar Awards for Investing Excellence are thus primarily qualitative and forward-looking, with the analysis leading to the Morningstar Analyst Rating playing a crucial role. This makes the Morningstar Awards for Investing Excellence unique of their kind.

The Morningstar Awards for Investing Excellence category awards are handed out in four disciplines: Best Europe Equity Fund, Best Global Equity Fund, Best Euro Bond Fund and Best Euro Allocation Fund.

The qualitative Morningstar Analyst Rating assigned by fund analysts plays a central role in the selection process for the Morningstar Awards for Investing Excellence. To qualify as a candidate for an award, a fund must be rated in one of the Morningstar categories eligible for the respective category award. To qualify for the longlist, the fund must have a Morningstar Analyst Rating of Gold, Silver or Bronze for the relevant fund class accessible to retail investors in Luxembourg. A shortlist is then compiled based on historical risk-adjusted performance, with a focus on performance in 2022, combined with nominations from fund analysts. After debating the shortlisted candidates, fund analysts cast their votes to determine the final ranking. The winner is determined by majority vote.

These are the three nominees for the Morningstar Awards for Investing Excellence in the Euro Bond category (in alphabetical order):

Candriam Bds Euro High Yld R EUR Cap

Morningstar Analyst Rating: Silver

People Pillar Score: High

Process Pillar Score: Above Average

Candriam Bonds Euro High Yield stands apart from the competition thanks to its stable and tight-knit investment team following a risk-aware, research-driven investment process. Nicolas Jullien took the helm at this fund, and leadership of Candriam’s global high-yield team, in January 2020. He was stepping into the shoes of previous high-yield chief Philippe Noyard, who was promoted to Candriam’s head of global credit. However, a number of factors made the transition less disruptive than it might have seemed.

For one, Jullien had worked alongside industry veteran Noyard in managing this strategy for the prior 13 years, during which time the two managers consistently plied a risk-aware and thoughtful process and built a compelling track record. For another, while Jullien is now responsible for the day-to-day decision-making in this portfolio, Noyard remains integral to the security selection process through his role chairing the group’s credit committee, where any issuers that enter the portfolio are vetted extensively by the high-yield team’s managers and credit analysts. Jullien is further supported by comanager Thomas Joret, who focuses primarily on the group’s global high-yield mandates, and an experienced team of six global high-yield analysts.

Jullien has not altered the investment process here, which relies mainly on security selection backed by deep fundamental analysis combined with relative value considerations. The manager also uses derivatives in moderation to adjust the portfolio’s overall credit market sensitivity or to gain exposure to certain highly traded issuers at a lower cost. Unlike many competitors in the euro high-yield bond Morningstar Category, the strategy treads lightly within the financial sector, which the managers argue carries policy risks inappropriate for a high-yield portfolio. That restrained opportunity set has not held the strategy back from beating its more broadly invested peer group.

Robeco European High Yield Bonds DH EUR

Morningstar Analyst Rating: Silver

People Pillar Score: High

Process Pillar Score: High

The strategy’s stalwart management team is key to its competitive edge. Roeland Moraal has managed the portfolio since its 2005 inception. Sander Bus has supported him here from the start and was formally named as a comanager in 2017. Since April 2007, Bus has served as co-head of Robeco’s credit team, which took some of his time away from portfolio management. However, effective February 2023, he steps away from that role to devote more time to managing funds. Both are risk-aware investors with a stewardship mindset. The breadth of the supporting cast also inspires confidence. The managers enjoy additional support from Christiaan Lever, who joined the team as a junior portfolio manager in 2016 and recently took over the group’s sustainable high-yield portfolio alongside Bus. Bus and Moraal are backed by an experienced team of 23 corporate credit analysts averaging 18 years› industry experience. 

The strategy relies primarily on bottom-up security selection, with top-down beta management playing a lesser role. The managers avoid concentrated stakes in single issuers, typically spreading their bets across a diversified portfolio of roughly 100 issuers. Their preference for companies with solid fundamentals typically results in a slightly higher average credit rating than peers or their benchmark. These characteristics help explain why the fund has held up better than rivals during bouts of market volatility. The team manages capacity in a risk-aware fashion; in September 2020 the high-yield strategies closed to investors as the firm reached their capacity limit of EUR 12 billion. Following a drop in assets, the offerings was subsequently reopened.

Schroder ISF Sustainable Euro Credit E Acc EUR

Morningstar Analyst Rating: Silver

People Pillar Score: Above Average

Process Pillar Score: Above Average

Saida Eggerstedt has served as lead portfolio manager here since the fund’s launch in December 2019. She was recruited by Patrick Vogel, the long-standing portfolio manager of Schroders’ flagship European corporate bond strategy, to develop a sustainable-investing version of his fund. While Eggerstedt closely collaborates with Vogel and benefits from his oversight, she maintains her independence when making investment decisions. As head of sustainable credit, she is also responsible for overseeing Schroders’ sustainable fixed-income product range, with more recent launches including a social impact credit fund and a carbon neutral credit fund. Eggerstedt boasts substantial experience in managing sustainable credit strategies; prior to joining the team, she was lead portfolio manager for strategies with a sustainability focus at Deka Investments, where she built a strong eight-year track record, and Standard Life.

The fund’s investment process shares much in common with the flagship euro credit fund, with a few unique characteristics of its own. It employs Schroders’ theme-driven issuer selection as it aims to outperform its benchmark, the ICE Bank of America Euro Corporate Bond Index, over a three- to five-year period. It also aims to maintain a higher overall sustainability score compared with the benchmark as measured by Schroders’ proprietary rating system, SustainEx, through a combination of sector exclusions; a focus on companies with strong or improving environmental, social and governance characteristics; and a hefty exposure to green, social, and sustainability bonds. The lead manager has been successful in outperforming the fund’s benchmark and the euro corporate bond Morningstar Category average since its inception, in part thanks to strong security selection.

These are the three nominees for the Morningstar Awards for Investing Excellence in the Euro Allocation category (in alphabetical order):

Cartesio Equity R

Morningstar Analyst Rating: Bronze

People Pillar Score: Above Average

Process Pillar Score: Above Average

We hold the managers and firm founders Juan Bertrán, Alvaro Martinez, and Cayetano Cornet in high regard. This dedicated trio has been investing together since 2004 and has closely aligned their interests with those of investors. We also appreciate the managers’ independent, contrarian mindset, and strong belief in their investment process. To support their research effort, in 2015-17 they built up a team of four analysts. Ignacio Sanz and Ignacio Carvajal became portfolio managers and partners in 2019 with a small ownership stake. Unfortunately, there has been some turnover among more junior staff and the investment team now totals six.

The team has a vast universe to cover as it invests in European firms of all sizes—and opportunistically in other regions. The managers rely to some extent on sell-side research, but this fund’s patient, value-oriented, and established process helps narrow the opportunity set. There are two sources of alpha here: asset allocation between stocks and cash (0-100%) and stock selection. The managers calibrate the strategy’s equity/cash mix based on their investment outlook and bottom-up assessment of the opportunity set. They typically respond gradually and countercyclically to major market moves or dislocations, preferring to keep cash for safety and optionality when prevailing valuations are high and opportunities are scarce. As for stock selection, the managers invest in 30-40 names with a long-term horizon. Companies are individually selected based on their fundamental merit but with a strong focus on valuations. This established, long-term-oriented process has been executed consistently since the strategy’s launch in 2004.

DWS Concept Kaldemorgen EUR FD

Morningstar Analyst Rating: Bronze

People Pillar Score: Above Average

Process Pillar Score: Above Average

Founding lead manager Klaus Kaldemorgen’s succession is progressing, as DWS has announced that previous comanager Christoph Schmidt will take the reins beside Kaldemorgen as co-lead. This sets Schmidt up as the likely leader as Kaldemorgen (born 1953) continues his gradual move to the sidelines. Kaldemorgen will stay with DWS beyond the end of 2022 but is reducing his commitments over an unspecified timeframe. After a luminous career as an equity manager, Kaldemorgen established this fund in 2011 and around it built the Total Return team which now counts eight portfolio managers, analysts, and risk managers. Equity specialist Schmidt has been there from the start, and since January 2013 has managed the ESG Dynamic Opportunities strategy successfully. In 2021 he also became co-lead of the Total Return team. Two other portfolio managers Henning Potstada and Thomas Graby support Kaldemorgen and Schmidt here.

The flexible investment approach has proven its worth. Asset allocation is based on the team’s market views and risk-management considerations. While the risk target of keeping volatility below 10% has been achieved since inception, the team allowed the fund to breach its maximum drawdown limit of 10% over a calendar year in the turbulence of March 2020. This is a slight knock on the process, but the recovery was swift and allowed the team to avoid a fire sale. Equities generally are the main source of return, while bonds, gold, and cash (including foreign-currency positions) are additional portfolio components. The team actively manages currency exposure from the standpoint of a eurocentric investor. Derivatives are used for tactical positioning or hedging.

Ruffer Total Return International C EUR Cap

Morningstar Analyst Rating: Bronze

People Pillar Score: Above Average

Process Pillar Score: Above Average

Ruffer Total Return International benefits from a clear and consistent focus on capital preservation, with a well-resourced, experienced, and collegiate investment team. Since its launch, Jonathan Ruffer and CIO Henry Maxey have been the key decision-makers on the strategy. Ruffer has over four decades of experience in managing private client investment and was formerly CIO of Rathbones before establishing Ruffer in 1994. Maxey joined Ruffer in 1998 and became CIO in 2010. Both Ruffer and Maxey are heavily involved in the formulation of the firm’s investment strategy. The two work very closely with the strategy group, which includes senior research analysts and investment managers. Portfolio construction is carried out by the named fund managers, Jacques Hirsch and Alex Lennard within this central framework.

Capital preservation has been a cornerstone of Ruffer’s investment strategy, whilst delivering attractive capital growth in real terms over the long run. This ethos has served the strategy’s investors well over time. Ruffer applies a collegiately driven and initially top-down approach to meet this objective. It begins with a thorough analysis of the global macro environment and the available investment opportunities and associated risks.

The portfolio building blocks here are largely conventional asset classes such as global equities, conventional and index-linked government bonds, cash, and some commodities. These assets are blended within the portfolio to ensure there is always a balance between what are considered growth and protection (or ‘greed’ and ‘fear’) assets. Unconventional assets also play an important role in meeting the objectives. The strategy makes use of various forms of derivative protection, which have been used to good effect during points of market stress. The strategy has delivered strong absolute and risk-adjusted long-term performance.

Winners announcement

The winners of the Morningstar Awards for Investing Excellence will be announced at a live event on Wednesday 8 March. To register for this event, please register here.