Morningstar downgrades two Geffen funds

Morningstar downgrades two Geffen funds

Morningstar has dealt a blow to Robin Geffen by downgrading two of the Neptune Investment Management founder’s funds.

The Neptune Balanced and Neptune Global Equity funds have both been stripped of their ‘silver’ awards by the ratings agency.

The Global Equity fund has seen its rating reduced by one notch to ‘bronze’ but the Balanced fund has seen its rating slashed to ‘neutral’.

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Jeremy Beckwith, director of manager research for Morningstar UK, said the Neptune Balanced fund had suffered in recent years due to it only containing equities and cash.

He said given Neptune’s lack of expertise in fixed income or alternatives the fund, which is in the IA Mixed Investment 40-85% Shares sector, has had to only invest in equities and at least 15 per cent in cash for several years.

Mr Beckwith said this inability to take advantage of opportunities outside of equities had “handicapped performance at times”.

While the Neptune Balanced fund has delivered top quartile returns against its peer group in the past year, it is in the bottom quartile for three years and the third quartile in the past five years.

In response, Mr Geffen said the decision not to hold fixed income in the fund was “far from being due to a ‘lack of fixed income expertise’ as this note erroneously suggests”, but was insead “because of a strongly-held economic view”.

The manager said the US was likely to raise its interest rate “faster than many in the market anticipate” and said this would pose “enormous challenges to bond markets” and lead to “significant further dollar strength versus sterling”.

Mr Geffen said for this reason he was avoiding bonds and holding the Neptune Balanced fund’s cash in dollars, which has worked well in he past year as the dollar has rallied.

He also pointed out the Neptune Defensive Managed and Neptune Cautious Managed funds both have substantial fixed income exposure and have been outperforming under the management of Ian Sealey.

But he said: “I do not believe that in the long-term investors would thank me for buying over-priced bonds today for balanced fund investors.”

Mr Beckwith said the Neptune Global Equity fund had been downgraded because of a “deterioration of its risk/return profile in recent years”.

However, he said: “The fund continues to boast many of the features we like to see: a talented and longstanding manager in Robin Geffen, who enjoys the support of an experienced and well-resourced team, coupled with a rigorous and well-thought-through process.”

The Global Equity fund is also top quartile against its peer group, the IA Global sector, in the past year but is in the bottom quartile for three and five years.