Morningstar has downgraded the Schroders US small and mid cap range run by Jenny Jones from a ‘gold’ rating to ‘silver’.
The range includes the onshore Schroder US Mid Cap and Schroder US Smaller Companies funds and two offshore ISF funds, US Smaller Companies and US Small & Mid Cap.
Morningstar said it was downgrading the funds from its highest rating due to underperformance on the fund and a number of changes that have taken place on Ms Jones’ team.
Morningstar said: “The manager’s overly defensive positioning coupled with disappointing stock selection have resulted in a period of sustained underperformance which has led to a deterioration of the fund’s risk-return profile.”
Robert Starbuck has stepped back as research director to take on an advisory role and was replaced by Bob Kaynor at the start of this year, while Schroders also hired Joanna Wald as a senior analyst on the team last year.
The Schroder US Smaller Companies fund is in the bottom quartile of the IMA North American Smaller Companies sector in both three and five years, according to FE Analytics. The US Mid Cap fund has fared better and is in the second quartile of the IMA North America sector in both one and five years, though it is third quartile in three years.
A spokesperson for Schroders pointed out that Morningstar still considers Ms Jones’ funds as a “solid choice” for investors.
The spokesperson said: “Detractors from recent performance include higher-than-average cash weightings as the manager struggled with rising valuation levels creating difficulties in finding higher conviction names in which to invest.
“Recent strong performance in the biotechnology group is a good example as extremely high valuations have precluded the manager from participating in the highest returning, and most expensive, names driving the overall group returns.”
The spokesperson also highlighted the recent “significant hires” to the team of Mr Kaynor and Ms Wald.
Schroders placed punitive initial charges on the US small and mid cap range in March 2011 to prevent new investors coming into the funds.
But it reopened the US Mid Cap fund in February 2013 as outflows had meant the range had halved in size from $5.2bn (£3.4bn) in March 2011 to around $2.6bn, though the US Smaller Companies fund is still closed.
Meanwhile Morningstar upgraded the £598.4m Schroder Recovery fund from a bronze rating to silver in its latest meeting. The Recovery fund, run by Kevin Murphy and Nick Kirrage, is in the top quartile of the IMA UK All Companies sector in one, three and five years and since Mr Murphy and Mr Kirrage took on the fund in 2006.
Morningstar said the upgrade reflected its “growing conviction” in the managers, praising their “strong shared investment philosophy” and the “execution of their valuation-based strategy”.
