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Abrdn, Franklin and Matthews Asia funds downgraded by Square Mile

05 October 2022

The research firm downgraded or removed the rankings for abrdn UK Smaller Companies, Franklin UK Equity Income and Matthews Asia Dividend after reviewing them in September.

By Tom Aylott,

Reporter, Trustnet

A set of funds including abrdn UK Smaller CompaniesFranklin UK Equity Income and Matthews Asia Dividend all had their ratings downgraded or removed in September after Square Mile Investment and Consulting most recent review.

The firm downgraded its ranking for abrdn UK Smaller companies fund after long-running manager Harry Nimmo announced that he will be retiring at the end of the year.

He spent 37 years at abrdn and developed the quality-growth momentum strategy that let to high returns across his portfolios.

Nimmo has led the £1.4bn portfolio since 2003, in which time it has made 762.2%, beating its peers in the IA UK Smaller Companies sector by 338.2 percentage points.

Total return of fund vs sector since Nimmo became manager

Source: FE Analytics

He will be succeeded by co-manager, Abby Glennie from the end of the year with Amanda Yeaman joining as deputy. Glennie moved to the smaller companies team in January 2016 before becoming deputy head in early 2020 in preparation for Nimmo’s eventual retirement.

Glennie also manages four other UK smaller company funds for abrdn worth a collective £393m in assets under management (AUM).

Abrdn has assured investors that the fund’s long-standing investment approach will remain unchanged after Nimmo’s exit, but the management still presents some uncertainty according to Square Mile.

As such, analysts at the firm de-rated the fund noting the “loss of his investment experience”.

Elsewhere, Square Mile researchers were also concerned by the news that Colin Morton will retire as manager from the Franklin UK Equity Income fund at the end of the year, thus removing its rating.

Morton managed the £920m fund from 2013, leading the portfolio 27 percentage points ahead of the IA UK Equity Income peer group with a total return of 73.3%.

Total return of fund vs sector since Morton became manager

Source: FE Analytics

His co-manager, Ben Russon, will become the lead manager from the start of next year having joined the fund just over two years ago.

However, Square Mile analysts said that although they “acknowledge his experience and track record in running UK equities, the fund’s rating was centred on Morton's involvement”.

The consulting firm did not rule out eventually returning the funds rating but wanted to observe Russon’s transition over the coming months before making a decision.

Square Mile also removed its rating the Matthews Asia Dividend fund in September because it has “not attracted significant investor interest in recent years”.

The $148m (£130m) portfolio led by FE fundinfo Alpha manager, Yu Zhang was up 100.3% over the past 10 years but failed to beat the IA Asia Pacific Including Japan sector by 33.4 percentage points.

Total return of fund vs sector over the past decade

Source: FE Analytics

The firm suspended its rating on the CT UK Equity Income fund, which had a ‘AA’ rating, after the announcement that veteran manager Richard Colwell is to retire.

Jeremy Smith, head of UK equity research at Columbia Threadneedle will take charge alongside current deputy manager Jonathan Barber, although a decision on its rating is yet to be made.

Conversely, three funds were given new ratings. The Guinness Sustainable Energy fund was given a ‘Responsible A’ rating, with analysts noting that the team had a “strong expertise of investing in the broader energy sector”.

Aviva’s multi asset core range was awarded a ‘Positive Prospect’ rating while BlueBay Impact Aligned Bond fund was given a ‘Responsible Positive Prospect’ classification in the latest review.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.