Fund upgrades and downgrades over the past 6 months

By Morningstar Analysts |  15-05-17 | 
 

The Morningstar Analyst Rating for Funds is a forward-looking analysis of a fund. The analyst looks at five key areas crucial to predicting the future success of a fund: People, Parent, Process, Performance, and Price. Also called the 5 pillars, they are used in determining the Morningstar Analyst Rating for a fund.

Gold / Silver / Bronze

These are the top three ratings and are all positive. While all indicate that our analysts think highly of a fund, the difference between them corresponds to differences in the level of analyst conviction in a fund’s ability to outperform its benchmark and peers through time, within the context of the level of risk taken over the long term*.

Neutral

These are funds in which our analysts don’t have a strong positive or negative conviction over the long term*.

Negative

These funds possess at least one flaw that our analysts believe is likely to significantly hamper future performance over the long term*.

* Long term is defined as a full market cycle or at least 5 years.

ICICI Prudential Flexible Income Plan

  • Date of Analysis: May 2017
  • Category: Ultrashort Bond
  • Fund Manager: Rohan Maru is the lead fund manager, Rahul Goswami continues as a co-manager
  • Star rating: 5 stars
  • Analyst Rating: Silver
  • Upgrade/Downgrade: Upgraded from Bronze
  • Investment Process: The fund is actively managed with slightly higher duration than its category peers. The fund manager follows a research-driven with a focus on the bottom-up approach.
  • Performance: An above-average performance track record with higher exposure in lower-rated credits.

Why the fund has been upgraded: The execution of the strategy has been good, which is successfully demonstrated through the fund’s superior risk-adjusted return. The fund’s expense ratio has been very competitive. The fund’s prospects are good with Goswami at the helm and Maru’s experience in managing short maturity funds.

Read the analyst note on ICICI Prudential Flexible Income Plan

ICICI Prudential Focused Bluechip Equity

  • Date of Analysis: April 2017
  • Category: Large Cap
  • Fund Manager: Manish Gunwani
  • Star rating: 4 stars
  • Analyst Rating: Silver
  • Upgrade/Downgrade: Upgraded from Bronze
  • Investment Process: The portfolio reflects a true-to-label large-cap fund that invests around 90% of its assets in large-cap stocks with sector weightings loosely aligned to the index. The fund manager applies a strong qualitative filter when choosing stocks.
  • Performance: The fund's performance has remained above average both over short and long time periods.

Why the fund has been upgraded: Manish Gunwani is a competent manager who has been able to ply the strategy efficiently. We expect his capabilities to hold the fund in good stead over the long term.

Read the analyst note on ICICI Prudential Focused Bluechip Equity

Reliance Tax Saver (ELSS)
  • Date of Analysis: April 2017
  • Category: ELSS (Tax Saving)
  • Fund Manager: Ashwani Kumar
  • Star rating: 4 stars
  • Analyst Rating: Bronze
  • Upgrade/Downgrade: Upgraded from Neutral
  • Investment Process: This is a concentrated fund that can vary its exposure across market caps. The fund manager won’t shirk from investing substantially in mid or small caps based on his conviction levels and even in less-liquid securities given the 3-year lock-in period. He looks for companies that he views as attractive growth opportunities at a reasonable price.
  • Performance: The fund will have the annual underperformance in certain years but investors who stay on will be rewarded.

Why the fund has been upgraded: The fund has remained a true-to-label product and is distinct in terms of character. It’s strategy’s success relies heavily on the portfolio manager’s ability to execute it skillfully. Ashwani Kumar is an experienced manager and is supported by a strong team. 

Read the analyst note on Reliance Tax Saver (ELSS)

Sundaram Select Mid Cap
  • Date of Analysis: April 2017
  • Category: Small/Mid Cap
  • Fund Manager: S. Krishnakumar
  • Star rating: 4 stars
  • Analyst Rating: Bronze
  • Upgrade/Downgrade: Downgraded from Silver
  • Investment Process: The portfolio is based on high-conviction ideas and can tend to be sector-heavy. The fund manager follows a well-defined process, aimed at constructing a growth-oriented long-term portfolio of stocks.
  • Performance: The fund has posted good returns in the past two calendar years and its 3-, 5-, and 10-year returns are ahead of the category average.

Why the fund has been downgraded: The investment team has recently undergone a restructuring process which will eventually yield positive results. But we would like to evaluate the impact of these changes over a longer term before we build more conviction on the team. The fund’s long-term orientation could lead to a divergent performance profile compared with the competition and index over shorter periods. Despite having a positive view on the fund, we would like to adapt a wait-and-watch approach to see how the changes pan out over the long term.

Read the analyst note on Sundaram Select Mid Cap

DSP Blackrock T.I.G.E.R.
  • Date of Analysis: December 2016
  • Category: Sector - Infrastructure
  • Fund Manager: Rohit Singhania
  • Star rating: 4 stars
  • Analyst Rating: Bronze
  • Upgrade/Downgrade: Upgraded from Neutral
  • Investment Process: The fund manager stays true to the fund’s mandate and investment criteria. He largely plies a bottom-up approach, combining growth and value styles of investing.
  • Performance: The fund has its share of annual underperformances but in the long run beats the category average. Its performance in the Infrastructure category looks promising.

Why the fund has been upgraded: The fund was earlier a part of the flexi-cap Morningstar Category, where its restrictive investment mandate failed to deliver desired results vis-à-vis its more flexible peers. Now it is a part of Morningstar’s newly created Sector-Infrastructure category. When compared with similar offerings, it makes a compelling investment option for investors seeking to benefit from the growth in the infrastructure sector. Further, with an experienced manager at the helm, the fund merits a rating upgrade.

Read the analyst note on DSP BlackRock T.I.G.E.R.

DSP BlackRock Equity

  • Date of Analysis: December 2016
  • Category: Flexi Cap
  • Fund Manager: Atul Bhole
  • Star rating: 3 stars
  • Analyst Rating: Neutral
  • Upgrade/Downgrade: Downgraded from Gold
  • Investment Process: The fund manager follows a growth-oriented investment approach. He prefers a simple and straightforward buy-and-hold approach. Large-cap stocks generally dominate the portfolio.
  • Performance: The fund has underperformed the category average in the past 4 years. The fund is yet to build a long-term performance track record under Bhole.

Why the fund has been downgraded: After Apoorva Shah relinquished his management responsibilities in July 2015, the fund was jointly managed by Harish Zaveri and Vinit Sambre. Atul Bhole took over in June 2016. While Bhole shows promise, we have yet to build the level of conviction in him which is required to assign a positive rating to the fund.

Read the analyst note on DSP BlackRock Equity

DSP BlackRock Top 100 Equity
  • Date of Analysis: December 2016
  • Category: Large Cap
  • Fund Manager: Harish Zaveri
  • Star rating: 3 stars
  • Analyst Rating: Bronze
  • Upgrade/Downgrade: Downgraded from Gold
  • Investment Process: This is a true-blue large-cap portfolio with a growth-oriented bottom-up strategy at play. The fund’s core investment strategy is to invest in stocks from the top 100 by market capitalisation.
  • Performance: After an underperformance for 3 consecutive years, the fund put up a good showing last year.

Why the fund has been downgraded: After Apoorva Shah relinquished his management responsibilities in July 2015, Harish Zaveri took over. He has extensive research experience spanning over two decades and currently heads the fund house’s research desk. While the change in the manager warrants a downgrade, it still deserves a positive rating. Hence we assign the fund a Bronze.

Read the analyst note o DSP BlackRock Top 100 Equity

DSP BlackRock Opportunities
  • Date of Analysis: December 2016
  • Category: Large Cap
  • Fund Manager: Rohit Singhania
  • Star rating: 5 stars
  • Analyst Rating: Neutral
  • Upgrade/Downgrade: Downgraded from Silver
  • Investment Process: A growth-oriented bottom-up strategy is at play. The manager adopts an unconstrained and unbiased approach while constructing the portfolio. Since this fund doesn’t have a defined investment approach, he has the liberty to capitalise on any investment opportunity that he sees in the market, provided it makes a grade on his selection parameters. Consequently, the fund’s portfolio turnover tends to be on the higher side.
  • Performance: Rohit Singhania took over the fund in June 2015 and has posted an impressive performance in his short stint with this fund.

Why the fund has been downgraded: The fund’s process can be rewarding and risky. The success of the investment process largely depends on Singhania’s execution skills. Although he has been in control of the investment process thus far, it’s a short time frame to build conviction. We would like to adopt a wait-and-watch approach and assign a Neutral until we gain more conviction in his investment and execution capabilities.

Read the analyst note on DSP BlackRock Opportunities

DSP BlackRock Tax Saver
  • Date of Analysis: December 2016
  • Category: ELSS (Tax Savings)
  • Fund Manager: Rohit Singhania
  • Star rating: 4 stars
  • Analyst Rating: Neutral
  • Upgrade/Downgrade: Downgraded from Silver
  • Investment Process: A growth-oriented bottom-up strategy is at play. The manager adopts an unconstrained and unbiased approach while constructing the portfolio. Since this fund doesn’t have a defined investment approach, he has the liberty to capitalise on any investment opportunity that he sees in the market, provided it makes a grade on his selection parameters. Consequently, the fund’s portfolio turnover tends to be on the higher side.
  • Performance: The fund’s performance numbers are impressive and its 5- and 10-year numbers put it way ahead of the category average.

Why the fund has been downgraded: The fund’s process can be rewarding and risky. The success of the investment process largely depends on Singhania’s execution skills. Although he has been in control of the investment process thus far, it’s a short time frame to build conviction. We would like to adopt a wait-and-watch approach and assign a Neutral until we gain more conviction in his investment and execution capabilities.

Read the analyst note on DSP BlackRock Tax Saver

Kotak Bond – Plan A

  • Date of Analysis: December 2016
  • Category: Intermediate Bond
  • Fund Manager: Abhishek Bisen
  • Star rating: 4 stars
  • Analyst Rating: Bronze
  • Upgrade/Downgrade: Upgraded from Neutral
  • Investment Process: A robust investment process with a strong hand at credit and duration management. The active trading strategy complements the investment process.
  • Performance: The track record under Bisen remains encouraging by maintaining higher portfolio maturity. It’s 3-, 5- and 10-year returns put it ahead of the category average while it is the chart topper in the 15-year return slot.

Why the fund has been upgraded: The main appeal of this fund has been the execution of its strategy. Duration calls and active trades have paid off in the recent years. Fund manager Abhishek Bisen has the experience and capabilities to manage this strategy and is backed by a good team. We like the investment process and believe the team is capable of adding value.

Read the analyst note on Kotak Bond – Plan A

Kotak Gilt Investment Fund

  • Date of Analysis: December 2016
  • Category: Long-Term Government Bond
  • Fund Manager: Abhishek Bisen
  • Star rating: 4 stars
  • Analyst Rating: Neutral
  • Upgrade/Downgrade: Downgraded from Bronze
  • Investment Process: The fund manager follows a research-intensive process with an overlay of active trading bets. He invests in a mix of government securities of varying maturities. Duration ranges between 5-20 years based on his view on interest rates. Duration plays and yield-curve positioning are the main sources of return.
  • Performance: The fund has a patchy record in terms of its performance.

Why the fund has been downgraded: We see the disadvantages of the fund in view of the high fees which impedes performance. Although we believe the manager has the necessary experience and resources, the disappointing returns and high fees limit our conviction.

Read the analyst note on Kotak Gilt Investment Fund

Add a Comment
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SOUMEN DEY
May 23 2017 02:55 PM
The evaluation of Kotak Gilt Investment Fund is curious.
You seem to have reacted only to poor performance. Should you not be proactive in such matters? Post mortem analysis will not help.
The note says high expenses have made you cautious. But that is an excuse. You liked the fund earlier when the expense ratio was higher than present (2.13% & 1.92% versus 1.40%). Maybe because then the performance was better?
Viswanath Nagarajan
May 16 2017 07:44 PM
The lowering of Sundaram Select Midcap's rank to Bronze is a typical example of the confused thinking that is the hallmark of your research.

At first, you praise the manager, his skill in mid-caps, in-depth understanding and even his research. Then you mention in passing, something about restructuring in investment team. You do not mention what is alarming in the restructuring. Subsequently, you express a positive opinion on that as well: "We think that the restructuring will yield positive results over the long term". After this, you reduce the fund's rank.

If there is a concern, do not give a positive opinion. If there is a positive opinion, there should be no concern. How can two contradictory things go hand-in-hand?
SV Prasad
May 15 2017 08:36 PM
DSPBR Equity downgrade from Gold to Neutral is quite steep, shows gaps in your rating methodology
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