BlackRock Strategic Funds - European Absolute Return Fund D2 EUR LU

Transcription

1 Page 1 of 9 Morningstar Category Alt - Long/Short Equity - Category Index Total Assets 1,5.86 Mil Current Yield % Inception Date 27/2/9 Domicile/ Currency LUX/ Morningstar Rating Equity Style Map Giant Large Mid Small K 1K Performance 31/1/17 Growth of 1, Annualized Value Ret % Fund 13, Category Index Full Manager Change Partial Manager Change Deep Value People Value Blend Growth High Growth Micro Stefan Gries 7/13 David Tovey 6/17 Total Named Managers 2 Morningstar Pillars Process p. 2-3 Performance p. 4 People p. 5 Parent p. 6 Price p. 7 Positive Negative _ 5K Morningstar Rating QQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQ QQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQ QQQQQQQQQQQQQQQQQQQQQQQQ QQQQQQQQ QQ Quartile Rank in Category Percentile Rank in Category % Total Return +/- Category +/- Index Process Equity Style Box Asset Allocation Stock Bond Cash Other Equity Supersectors m Cyclical w Sensitive x Defensive Price TER/OGC Analyst View Fatima Khizou, Analyst Significant changes at the team and process levels. The conduct of Morningstar's analysts is governed by Morningstar's Code of Ethics, Securities Trading and Disclosure Policy, and Morningstar Manager Research Integrity Policy. For informaton regarding conflicts of interest, please click Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform over the long term on a risk-adjusted basis. Analyst Rating Spectrum Œ Á The for Funds is a forward-looking analysis of a fund. Morningstar has identified five key areas crucial to predicting the future success of a fund: People, Parent, Process, Performance, and Price. The pillars are used in determining the for a fund. s are assigned on a five-tier scale running from Gold to Negative. The top three ratings, Gold, Silver, and Bronze, 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 (defined as a full market cycle or at least five years). Neutral represents funds in which our analysts don t have a strong positive or negative conviction over the long term (defined as a full market cycle or at least five years) and Negative represents funds that possess at least one flaw that our analysts believe is likely to significantly hamper future performance over the long term (defined as a full market cycle or at least five years). Past performance of a security may or may not be sustained in future and is no indication of future performance. For detailed information about the Morningstar Analyst Rating for Funds, please visit 16 Aug, 217 Manager and investment process changes at BSF an Absolute Return see its drop to Neutral. Vincent Devlin, who ran this fund since its February 29 inception, was replaced by David Tovey, a BlackRock employee since 1998, in June 217. Stefan Gries, who was appointed to the role of comanager in July 213, remains in place. Tovey started his career as an analyst, with a focus on smaller companies, and has held portfolio management responsibilities since 27; starting with the BSF an Opportunities Extension fund, followed shortly after by BGF Swiss Small & Mid-Cap Opportunities. The former has a small/mid cap bias and is likely to have an increasing overlap with this fund. The managers continue to carry out sector research and make use of the an equity team s analysis to select portfolio holdings. While the bottom-up analysis remains the same, several changes including to the fund s risk limits have been made. The net market exposure limits have been expanded to -/+25% from -1/+2% to allow managers to take advantage of market opportunities if needed. However the fund will typically be run with a net market exposure range of -/+1%. Short index futures are unlikely to be used going forward. Stock selection is intended to be the main driver of returns and the portfolio s overall positioning. Stock limits have also gone up to increase stock-specific conviction and the exposure to shorts will increase. The ability to invest across market capitalisations remains in place. However, we expect to see higher exposure to smaller companies given Tovey s bias. A number of portfolio changes have taken place since the new duo was put in place. For example, more than a quarter of long positions were exited--mostly cyclical and smaller-cap names-- while several new shorts were entered. This has considerably reduced the short index exposure and there will be a preference for using stock positions as a way to turn down the portfolio s beta. The proposed changes might all be for the best. However, there are several uncertainties, including around the collaboration between the comanagers and their implementation of the new approach.

2 Page 2 of 9 Process: Approach Morningstar Category Category Index Index Proxy Alt - Long/Short Equity - Uncertainty around the implementation of the investment approach. Process Pillar Equity Style 31/1/17 Holdings-Based Style Map Deep Value Value Blend Growth High Growth Equity Style Box Factors Giant Large Mid Small Micro Fund Centroid: Weighted average of equity holdings Zone: 75% of fund equity holdings Category Average Index Proxy Market Cap Fund 3-Yr Avg Category Proxy Giant/Large Mid Small/Micro Avg Market Cap Bil Value Measures Fund 3-Yr Avg Category Proxy Price/Prospect. Earnings Price/Book Price/Sales Price/Cash Flow Dividend Yield Growth Measures Fund 3-Yr Avg Category Proxy Long-Term Earnings % Historical Earnings % Sales % Cash Flow % Book-Value % Aug, 217 The new duo continues to draw on the an Equity team s research to select portfolio holdings. The first step involves narrowing the investable universe using various metrics such as valuation metrics and earnings revisions. This also includes team discussions on macro and sector trends. The second step involves fundamental analysis on market dynamics, revenue drivers, margins, financial statements, and valuations. Analysts determine price targets and rank stocks from 1 (buy) to 5 (sell) depending on their risk-adjusted upside potential. This process generates both long and short ideas. While the bottom-up approach remains the same, several changes have been made, notably to the fund s risk limits and portfolio construction. The fund s net market exposure limits have moved to -/+25% to allow the managers to take advantage of market opportunities if needed. However, the fund Asset Allocation 31/1/17 Current Allocation 3-Year Average Net Assets % Fund 3-Yr Avg Category Proxy Equity Fixed Income Cash Other Regional Exposure 31/1/17 Market Type Equity % Fund 3-Yr Avg Category Proxy Developed Emerging Top 5 Countries Equity % Fund 3-Yr Avg Category Proxy Switzerland Denmark Belgium Finland United States Key Ratios 31/1/17 Fund 3-Yr Avg Category Proxy Net Margin % ROA % Debt/Total Capital % ROE % will typically be run with a net market exposure range of -/+1%. Individual position size limits have gone up to increase stock-specific conviction and there is more emphasis on company fundamentals than macro analysis. Moreover, the number of short positions has also increased and index futures are unlikely to be used. Finally, we expect the fund's market capitalisation profile to change given David Tovey s bias to smaller companies. These changes are not necessarily negative but it is not entirely clear how the new management team will implement this new approach. Sectors 31/1/17 Sector Delta Defensive Sensitive Cyclical Fund Index Larger sector concentrations versus the index move the investment to the corner of the triangle corresponding to that equity Super Sector. Equity Sectors Fund 3-Yr Avg Category Proxy xdefensive sconsumer Defensive dhealthcare futilities wsensitive icommunication Serv oenergy pindustrials atechnology mcyclical rbasic Materials tconsumer Cyclical yfinancial Services ureal Estate Economic Moat 31/1/17 Fund 3-Yr Avg Category Proxy Wide Moat Narrow Moat No Moat Coverage Ratio

3 Page 3 of 9 Process: Portfolio Morningstar Category Category Index Index Proxy Alt - Long/Short Equity - A more flexible mandate and less long biased portfolio. Process Pillar 16 Aug, 217 The fund will continue to comprise 5-15 positions but it will be less long-biased. The new net exposure is limited to -/+25% (previously -1/+2) but the max gross exposure at 15% is unchanged. The maximum stock positions have moved to -/+ 5% from -/+3%. Turnover will remain a function of the opportunity set and a Similarity to Index Proxy 31/7/17 reassessment of both long and short positions will be triggered at 5% loss. At the time of the review, about 15 positions on the long book had been exited due to stock specific reasons. This included large-cap cyclical and smaller-cap names. On the short book, the exposure to REITs had been increased and positions were also entered in consumer businesses which are likely to face headwinds from slowing sales, particularly in the UK. Moreover, the exposure to hedging strategies (index shorting) had also been reduced by 5%. Manager David Tovey mentioned that he is unlikely to short indexes as he intends for stock selection to be the main driver of returns and portfolio s overall positioning. As a result of these gradual changes, the fund s beta has come down from.4 to negative.4. The gross exposure was around 91%. At the time of the review, the fund s largest net long positions were in healthcare, information technology and industrials. The exposure to the latter was slightly reduced as, in the managers view, valuations are becoming stretched. In contrast, the fund exhibited net short positions, primarily in telecoms and energy. Index Proxy Overlap Number of Equity Holdings Fund 123 Index Proxy Fund Overlap With Index Proxy Holdings Overlap Asset Overlap Largest Common Holdings Fund % Proxy % Largest Distinct Holdings Fund % Portfolio Holdings 31/7/17 Previous Portfolio Date Equity Holdings Bond Holdings Other Holdings Assets in Top 1 Holdings Turnover Ratio (Reported) 3/6/ % 8% Top 1 Equity Holdings Country Assets % Assets % Proxy % 31/7/17 3/6/17 31/7/17 R Stoxx Eur Mid 2 Sep 17 DEU R Dax Index Sep 17 DEU T Nets A/S DNK /16 3 a Technology 26.1 T Lonza Group Ltd CHE /15 <1 No r Basic Materials T Straumann Holding AG CHE /15 <1 d Healthcare 76.9 Cie Financiere Richemont SA CHE /17 <1 Wide t Consumer Cyclical Telenet Group Holding NV BEL /16 2 i Communication Serv Change since previous portfolio: T Increase Y Decrease R New First Bought Days Trading Economic Moat Sector 1-Yr Total New Holdings Largest Purchases % Assets Sector Stoxx Eur Mid 2 Sep Dax Index Sep British American Tobacco PLCCFD 2.2 Worldpay Group PLCCFD 1.98 Associated British Foods PLCCFD 1.59 Eliminated Holdings Largest Sales % Assets Sector Dax Index Sep Stoxx Eur Mid 2 Sep Associated British Foods PLCCFD 1.51 Hexagon AB BCFD 1.38 Rightmove PLCCFD 1.34 Largest Position Changes Current % Prior % Y BlackRock Instl Euro Asts Liq Agcy Inc R British American Tobacco PLCCFD 2.2. Y Associated British Foods PLCCFD Y Hexagon AB BCFD Y Rightmove PLCCFD. 1.34

4 Page 4 of 9 Morningstar Category Category Index Performance Alt - Long/Short Equity - A new start for this fund s track record. Performance Pillar 16 Aug, 217 The long-term track of this fund is of limited relevance given the changes but it somewhat demonstrates the overall team success in managing such a flexible mandate. Under former lead manager Vincent Devlin, the fund delivered solid returns. From its inception in February 29 through June 217, the fund has generated a positive return of 3.2%, considerably ahead of its benchmark, the threemonth euro Libor rate. The annualised volatility was also 3.2% compared with 13.3% for the MSCI index over the same period. Under Devlin s watch, value was added primarily through the long book. With the exception of 216 during which the fund fell by more than 7%, returns were positive in each calendar year. The manager's decision to short banks, energy, and emerging-markets consumer names was a major headwind over that period. The fund's use of index futures and style bias have also been detracted significantly as markets rotated. Among the different strategies where David Tovey has been named manager, the BSF an Opportunities Extension offering s track record is the most relevant to this fund. However, it is worth noting that Tovey s track record here as lead manager is relatively limited, having spent the vast majority of his tenure in a co-manager set-up. Morningstar Rating and Risk 31/1/17 Period Morningstar Ret vs Cat Morningstar Risk vs Cat 3 Years 5 Years 1 Years Overall Rating Risk Analysis 31/1/17 3-Year Return and Risk Analysis Total Return % Morningstar Rating Fund Category Index _ History 31/1/17 12-Month Rolling Return % Fund Full Manager Change Partial Manager Change Quartile Rank in Cat Percentile Rank in Cat % Total Return +/- Category +/- Index Income Return Standard Deviation 3-Year Risk Measures Fund Category Index Standard Deviation 3.26 Sharpe Ratio.62 R-Squared Beta Alpha Maximum Drawdown Fund Category Index Max Drawdown (%) Peak Date Valley Date Max Drawdown (Months) Upside/Downside Fund Category Index Upside Capture Ratio Downside Capture Ratio Returns 31/1/17 Trailing Returns Total Investor Rank in Cat Cat Index 1 Year Years Years Years Tenure 7/ Inception 2/ Rolling-Returns Summary 14% Month Rolling Periods 37 Observations, 3 Years The shading and percentages correspond to how often the fund returns landed in each category quartile. Income and Capital Returns Return % Income Return Capital Return Year /17 Income Income % Rank in Cat Capital Capital % Rank in Cat /

5 Page 5 of 9 Morningstar Category Category Index People Alt - Long/Short Equity - A new management set-up. People Pillar 16 Aug, 217 Vincent Devlin, who managed this fund since its inception in February 29, was replaced by David Tovey, a BlackRock employee since 1998, at the end of June 217. Tovey started his career as an analyst on the US Small Cap team before joining the an team in September In addition to this fund, Tovey is Management Team also named on three further strategies: Two Swiss funds including a long/short mandate- BGF Swiss Small & Mid-Cap Opportunities, and Aletsch and BSF an Opportunities Extension. Stefan Gries who became comanager on this strategy in July 213, having joined Black- Rock in 28 from SWIP, remains in place. The duo will continue to be supported by the well-resourced team of sector analysts as well as having research responsibilities themselves. Gries has taken over Devlin s research responsibilities on business services while Tovey will continue to cover healthcare. While Tovey is an experienced manager, he is likely to bring a small/mid cap bias, whereas Gries has witnessed more muted exposure to this space. Additionally, a large part of Tovey s track record on the BSF an Opportunities Extension fund, which is likely to have some overlap with this fund, has been as a comanager, having only been sole manager since late 216. Given the significant changes here, and uncertainties around the new managers collaboration, we have reduced the fund s People Pillar rating to Neutral. Experience and Asset Load Total AUM Bil in Funds Managed 2+ Number of Managers Longest Tenure Years Manager Retention Rate 5-Year % Average Manager Tenure 2.37 Years Tenure Years Advisor BlackRock Investment Management (UK) Ltd. Subadvisor BlackRock Investment Management (UK) Ltd. Stefan Gries 7/13 to Present Years on Managed Funds Years on Fund 4 4 Fund AUM Current Funds Managed 2, Mil 6 Largest Funds Managed Tenure Dates Role Fund Size Bil Investment Mil Tenure Index BSF an Absolute Return Fund 7/13 to Present 1 of BlackRock Continental an Fund 6/17 to Present 1 of BlackRock Greater 6/17 to Present 1 of BlackRock an Absolute Alpha Fund 7/13 to Present 1 of David Tovey 6/17 to Present Years on Managed Funds Years on Fund 11 Fund AUM Current Funds Managed 3, Mil 4 Largest Funds Managed Tenure Dates Role Fund Size Bil Investment Mil Tenure Index BSF an Opportunities Extension 8/7 to Present Lead Fd BSF an Absolute Return Fund 6/17 to Present 1 of BGF Swiss Small & MidCap Opps Fd 8/8 to Present Lead BlackRock an Absolute Alpha Fund 6/17 to Present 1 of

6 Page 6 of 9 Morningstar Category Category Index Parent Alt - Long/Short Equity - BlackRock, though not perfect, has largely served fundholders well. Parent Pillar Positive 9 Jun, 217 At $5 trillion in assets under management, BlackRock is the largest asset manager in the world. The firm isn't perfect--after struggling with its active-equity capabilities for years, it's reorganizing that outfit for the second time, and its ishares franchise launches some trendy exchange-traded funds. But the firm has made Assets By Region, By Domicile Bil Fund Family Details (*) Breakdown great strides to encourage its portfolio managers to invest alongside fundholders, and strengthen its investment offerings. The firm's Parent rating was raised to Positive from Neutral. The firm has grown quickly, in large part thanks to the strength of ishares and its active fixed-income and multi-asset businesses, as well as a growing institutional business, which includes mostly index-based strategies. BlackRock's solid stewardship of capital stems in large part from its decision that to succeed as a publicly traded asset manager, it must act as a responsible, high-performing fiduciary. The firm uses its scale and technological capabilities to achieve this goal. BlackRock is constantly evolving and has focused on technology in recent years to further growth, including selling its proprietary riskmanagement system, Aladdin, to competitors and developing a pared-down version for advisors. A recent announcement to move $3 billion in active equity to quant-driven strategies demonstrates a willingness to rely more heavily on technology to run portfolios. Morningstar Rating Breakdown Americas & Africa Asia & Australia 6.6 Rating Assets % Œ ˇ 4. Ø Not Rated 58.8 Rating Assets % QQQQQ 16.5 QQQQ 31.4 QQQ 14.2 QQ 6.2 Q.1 Not Rated 31.7 Asset Class Breakdown (ex Money Mkt) Assets Bil Asset Class Assets Bil Assets % Equity Fixed Income Allocation Convertibles Property Alternative Commodities Fund Family Details Top Performing Funds Category Name Fund Size Mil Return % 3-Year Rank in Cat 3-Year BlackRock Active Selection Fund - an Large-Cap Blend Equity Unconstrained Equity Fund Institutional Acc BlackRock Charishare Common Investment Acc UK Large-Cap Blend Equity BlackRock Global Funds - Renminbi Bond Fund D3 USD RMB Bond Largest Funds Category Name Fund Size Mil Return % 3-Year Rank in Cat 3-Year BlackRock Global Funds - Global Allocation USD Moderate Allocation 16, Fund A2 BlackRock Global Funds - Euro Short Duration Diversified Bond - Short 11, Bond Fund A2 Term ishares Developed World Index Fund (IE) Flexible Acc USD Global Large-Cap Blend Equity 1, Recent Fund Launches Category Name Fund Size Mil Return % Inception Inception Date BlackRock Global Funds - China Flexible Equity China Equity. 31/1/17 Fund I2 USD BGF China A-Share Opportunities Fund I2 USD China Equity - A Shares /1/17 Blackrock ACS 3:7 Global Equity Tracker Fund Global Equity - Currency Hedged 3, /7/17 X1 GBP Acc (*) All data is based on Branding name and refers to funds domiciled in.

7 Page 7 of 9 Morningstar Category Category Index Price Alt - Long/Short Equity - Above-average expenses TER/OGC Expense History TER/OGC Price Pillar Negative 16 Aug, 217 The fund s ongoing charge on its clean share class (D2) is at 1.36% which is above the median (1.18%) of ongoing charges for clean share classes for long/short an equity funds. Additionally, the fund also charges a performance fee of 2% above three-month euro Libor and subject to a high-water mark TER/OGC Net Assets Bil Net Flows Bil Expense Breakdown Ongoing charge Ongoing charge 7/2/ Fee Level Fee Level Peer Group Selected Components Max Management Fee 1. Performance Fee 2. Fee Level Breakpoints High >. Above Average.-. Average.-. Below Average.-. Low <. Fund 1.36 Peer Median Share Class Information Share Class Identifier Morningstar Category TER/OGC Max Mgmt Fee Performance Fee Maximum Inital Charge BSF an Absolute Return LU Alt - Long/Short Equity D2 BSF an Absolute Return A2 LU Alt - Long/Short Equity BSF an Absolute Return I2 LU Alt - Long/Short Equity BSF an Absolute Return E2 LU Alt - Long/Short Equity BSF an Absolute Return A4 LU Alt - Long/Short Equity BSF an Absolute Return D4 LU Alt - Long/Short Equity Minimum Initial Inv Assets Bil

8 Morningstar Global Fund Report Disclosure The Morningstar Global Fund Report ( Report ) is for informational purposes, intended for financial professionals and/or qualified investors ( Users ) and should not be the sole piece of information used by such Users or their clients in making an investment decision. The analysis within this report is prepared by the person(s) noted in their capacity as an analyst for Morningstar. The opinions expressed within the Report are given in good faith, are as of the date of the Report and are subject to change without notice. Neither the analyst nor Morningstar commits themselves in advance to whether and in which intervals updates to the Report are expected to be made. The written analysis and within this Report are statements of opinions; they are not statements of fact. Morningstar believes its analysts make a reasonable effort to carefully research information contained in their analysis. The information on which the analysis is based has been obtained from sources which are believed to be reliable such as, for example, the fund s prospectus and shareholder reports (or their equivalents), fund company website, interviews with fund company personnel, and relevant and appropriate press sources as well as data, statistics and information within Morningstar s own database. Morningstar does not perform an audit or seek independent verification of any of the data, statistics, and information it receives. Unless otherwise provided in a separate agreement, Users accessing this Report may only use it in the country in which the Morningstar distributor is based. Unless stated otherwise, the original distributor of the report is Morningstar Inc., a U.S.A. domiciled financial institution. This Report is for informational purposes only and has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This publication is intended to provide information to assist institutional investors in making their own investment decisions, not to provide investment advice to any specific investor. Therefore, investments discussed and recommendations made herein may not be suitable for all investors; Users and User clients must exercise their own independent judgment as to the suitability of such investments and recommendations in the light of their own investment objectives, experience, taxation status and financial position. The information, data, analyses and opinions presented herein are not warranted to be accurate, correct, complete or timely. Unless otherwise provided in a separate agreement, Morningstar makes no representation that the Report contents meet all of the presentation and/or disclosure standards applicable in the jurisdiction the recipient is located. Except as otherwise required by law or provided for in a separate agreement, the analyst, Morningstar and its officers, directors and employees will not be responsible or liable for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions within the report. Morningstar encourages Users and User clients to read all relevant issue documents (e.g., prospectus) pertaining to the security concerned, including without limitation, information relevant to its investment objectives, risks, and costs before making an investment decision and when deemed necessary, to seek the advice of a legal, tax, and/or accounting professional. The Report and its contents are not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Morningstar or its affiliates to any registration or licensing requirements in such jurisdiction. Where this report is made available in a language other than English and in the case of inconsistencies between the English and translated versions of the report, the English version will control and supersede any ambiguities associated with any part or section of a report that has been issued in a foreign language. Neither the analyst, Morningstar, or Morningstar affiliates guarantee the accuracy of the translations. This Report may be distributed in certain localities, countries and/or jurisdictions ( Territories ) by independent third parties or independent intermediaries ( Distributors ). Such Distributors are not acting as agents or representatives of the analyst or Morningstar. In Territories where a Distributor distributes our Report, the Distributor, and not the analyst or Morningstar, is solely responsible for complying with all applicable regulations, laws, rules, circulars, codes and guidelines established by local and/or regional regulatory bodies, including laws in connection with the distribution third-party research reports. Œ Á ˆ For a list of funds which Morningstar currently covers and provides written analysis on please contact your local Morningstar office. For information on the historical for this fund or any Fund Morningstar covers, please contact your local Morningstar office. Please note that investments in securities (including mutual funds) are subject to market and other risks and there is no assurance or guarantee that the intended investment objectives will be achieved. Past performance of a security may or may not be sustained in future and is no indication of future performance. A security investment return and an investor s principal value will fluctuate so that, when redeemed, an investor s shares may be worth more or less than their original cost. A security s current investment performance may be lower or higher than the investment performance noted within the report. Morningstar s Risk, Return and Star Rating serves as useful data points with respect to evaluating a fund s risk profile. A current yield percentage is not a reflection of the actual return an investor will receive in all cases as market prices for securities are constantly changing due to such things as market factors. Where a security is denominated in a different currency than the currency of the User or User s clients, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment. Indexes noted within the report are unmanaged, their returns do not include payment of any sales charges or fees an investor would pay to purchase securities, and cannot be invested in directly. In certain jurisdictions, the Report contents, except for the and key analysis/opinions, may be shared with the fund company prior to publication. In the unlikely event that Morningstar would change their analysis/opinions and/or the based on feedback as result of such review, the Report would disclose such a fact. Conflicts of Interest: Analysts may own (actual or beneficial) interests in the financial products that are the subject of the Report. No material interests are held by Morningstar, the analyst or their immediate family in the financial products that are the subject of the Report.* Analysts compensation is derived from Morningstar s overall earnings and consists of salary, bonus and in some cases restricted stock. Analysts receive no compensation or material benefits from product issuers or third parties in connection with the Report.# Morningstar does not receive commissions for providing research and does not charge financial product issuers to be rated. Analysts may not pursue business and employment opportunities outside Morningstar within the investment industry (including but not limited to, working as a financial planner, an investment adviser or investment adviser representative, a broker-dealer or broker-dealer agent, a financial writer, reporter, or analyst). Morningstar may provide the product issuer or its related entities with services or products for a fee and on an arms length basis including software products and licenses, research and consulting services, data services, licenses to republish our ratings and research in their promotional material, event sponsorship and website advertising. Morningstar affiliates (i.e., its investment management group) may have arrangements with a fund company s affiliate to provide investment consulting advice some of which an analyst may issue an investment research reports on one or more of the fund company s funds. However, analysts do not have authority over Morningstar's investment management group's business arrangements nor allow employees from the investment management group to participate or influence the analysis or opinion prepared by them. Morningstar, Inc. is a publically traded company (Ticker Symbol: MORN) and thus a fund which is the subject of this Report may own more than 5% of Morningstar, Inc. s total outstanding shares. Please access Morningstar, Inc. s proxy statement, Security Ownership of Certain Beneficial Owners and Management section A fund s holding of Morningstar stock has no bearing on and is not a requirement for funds Morningstar determines to cover. Page 8 of 9 Analysts do not have any other material conflicts of interest at the time of publication. Users wishing to obtain further information should contact their local Morningstar office or refer to The for Funds The for Funds is a forward-looking analysis of a fund. The Analyst Rating does not express a view on a given asset class or peer group; rather, it seeks to evaluate each fund within the context of its objective, an appropriate benchmark, and peer group. The date shown next to the is the date on which Morningstar Manager Research Analyst assigned or reaffirmed the current rating for the fund based on the analyst s latest review and research report for the fund. The Five (5) Pillars Morningstar has identified five key areas that we believe are crucial to predicting the future success of funds: People, Parent, Process, Performance, and Price. Each pillar is evaluated when assessing a fund as well as the interaction between the pillars, which we believe is crucial to understanding a fund s overall merit. People The overall quality of a fund s investment team is a significant key to its ability to deliver superior performance relative to its benchmark and/or peers. Evaluating a fund s investment team requires that analysts assess several relevant items including how key decisions are made. Parent We believe the parent organization is of utmost importance in evaluating funds. The fund s management set the tone for key elements of our evaluation, including capacity management, risk management, recruitment and retention of talent, and incentive pay. Beyond these operational areas, we prefer firms that have a culture of stewardship and put investors first to those that are too heavily weighted to salesmanship. Process We look for funds with a performance objective and investment process (for both security selection and portfolio construction) that is sensible, clearly defined, and repeatable. In addition, the portfolio should be constructed in a manner that is consistent with the investment process and performance objective. Performance We do not believe past performance is necessarily predictive of future results, and this factor accordingly receives a relatively small weighting in our evaluation process. In particular, we strive not to anchor on short-term performance. However, we do believe that the evaluation of long-term return and risk patterns is vital to determining if a fund is delivering to our expectations. Price To reflect actual investor experience, price is evaluated within the context of the relevant market or cross-border region for example, the United States, Australia, Canada, or. In recognition of differences in scale and distribution costs in various markets, the level at which a fund is penalised for high fees or rewarded for low fees can vary with region. In, for example, funds are penalised if they land in the most expensive quintile of their Morningstar category and are rewarded if they land in the cheapest quintile. The assessment is made using annual expense ratios, but in the case of funds with performance fees, expenses are evaluated excluding any performance fees and then the structure of the performance fee is evaluated separately.

9 s s are assigned on a five-tier scale running from Gold to Negative. The top three ratings, Gold, Silver, and Bronze, 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. Gold Represents funds that our analyst has the highest-conviction in for that given investment mandate. By giving a fund a Gold rating, we are expressing an expectation that it will outperform its relevant performance benchmark and/or peer group within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years). To earn a Gold rating, a fund must distinguish itself across the five pillars that are the basis for our analysis. Silver Represents funds our analyst has high-conviction in, but not in all of the five pillars. With those fundamental strengths, we expect these funds will outperform their relevant performance benchmark and/or peer group within the context of the level of risk taken over the long term (defined as a full market cycle or at least five years). Bronze Represents funds that have advantages that clearly outweigh any disadvantages across the pillars, giving analyst the conviction to award them a positive rating. We expect these funds to beat their relevant performance benchmark and/ or peer group within the context of the level of risk taken over a full market cycle (or at least five years). Neutral Represents funds in which our analysts don t have a strong positive or negative conviction. In our judgment, these funds are not likely to deliver standout returns, but they aren t likely to seriously underperform their relevant performance benchmark and/or peer group either. Limited. Morningstar Investment Adviser India Private Limited is registered with the Securities and Exchange Board of India (Registration number INA1357) and provides investment advice and research. Morningstar Investment Adviser India Private Limited has not been the subject of any disciplinary action by SEBI or any other legal/regulatory body. Morningstar Investment Adviser India Private Limited is a wholly owned subsidiary of Morningstar Investment Management LLC. In India, Morningstar Investment Adviser India Private Limited has one associate, Morningstar India Private Limited, which provides data related services, financial data analysis and software development. The Research Analyst has not served as an officer, director or employee of the fund company within the last 12 months, nor has it or its associates engaged in market making activity for the fund company. Page 9 of 9 *The Conflicts of Interest disclosure above also applies to relatives and associates of Manager Research Analysts in India #The Conflicts of Interest disclosure above also applies to associates of Manager Research Analysts in IndiaThe terms and conditions on which Morningstar Investment Adviser India Private Limited offers Investment Research to clients, varies from client to client, and are detailed in the respective client agreement. For recipients in Japan: The Report is distributed by Ibbotson Associates Japan, Inc., which is regulated by Financial Services Agency. Neither Ibbotson Associates Japan, Inc., nor its representatives, are acting or will be deemed to be acting as an investment advisor to any recipients of this information. For recipients in Singapore: This Report is distributed by Morningstar Investment Adviser Singapore Pte Limited, which is licensed by the Monetary Authority of Singapore to provide financial advisory services in Singapore. Investors should consult a financial adviser regarding the suitability of any investment product, taking into account their specific investment objectives, financial situation or particular needs, before making any investment decisions. Negative Represents funds that possess at least one flaw that our analysts believe is likely to significantly hamper future performance, such as high fees or an unstable management team. Because of these faults, we believe these funds are inferior to most competitors and will likely underperform their relevant performance benchmark and/or peer group, within the context of the level of risk taken, over a full market cycle. Morningstar may also use two other designations in place of a rating: Under Review This designation means that a change that occurred with the fund or at the fund company requires further review to determine the impact on the rating. Not Ratable This designation is used only where we are providing a report on a new strategy or on a strategy where there are no relevant comparators, but where investors require information as to suitability. For more information about our Analyst Rating methodology please go to Morningstar Star Rating The Morningstar Star Rating is a proprietary data point that is quantitatively driven. Funds are rated from one to five stars based on how well the fund performed (after adjusting for risk and accounting for sales charges) in comparison to similar funds. Within each Morningstar Category, the top 1% of funds receive five-stars and the bottom 1% receives one-star. Funds are rated for up to three time periods three-, five-, and ten-years and these ratings are combined to produce an overall star rating, which is noted within the Report. Funds with less than three years of history are not rated. Morningstar Star Ratings are based entirely on a mathematical evaluation of past performance. Morningstar Star Ratings are in no way to be considered a buy or sell signal nor should be viewed as a statement of fact. Equity-Related Data Points The Report lists the fund s top ten holdings as of the dated noted. For each underlying holding, a series of data points is provided including, where applicable, that security s Economic Moat as of the date noted. Economic Moat The concept of an economic moat plays a vital role in our equity analyst s qualitative assessment of a firm s long-term investment potential, but also in the actual calculation of its fair value estimate. An economic moat is a structural feature that allows a firm to sustain excess profits over a long period of time. We define economic profits as returns on invested capital (or ROIC) over and above our estimate of a firm s cost of capital, or weighted average cost of capital (or WACC). Without a moat, profits are more susceptible to competition. We have identified five sources of economic moats: intangible assets, switching costs, network effect, cost advantage, and efficient scale. Companies with a narrow moat are those we believe are more likely than not to achieve normalized excess returns for at least the next 1 years. Wide-moat companies are those in which we have very high confidence that excess returns will remain for 1 years, with excess returns more likely than not to remain for at least 2 years. The longer a firm generates economic profits, the higher its intrinsic value. We believe low-quality, no-moat companies will see their normalized returns gravitate toward the firm s cost of capital more quickly than companies with moats. For more information about methodology in analysing stocks, please go to For Recipients in Australia: This Report has been issued and distributed in Australia by Morningstar Australasia Pty Ltd (ABN: ; ASFL: 24892). Morningstar Australasia Pty Ltd is the provider of the general advice ( the Service ) and takes responsibility for the production of this report. The Service is provided through the research of investment products. To the extent the Report contains general advice it has been prepared without reference to an investor s objectives, financial situation or needs. Investors should consider the advice in light of these matters and, if applicable, the relevant Product Disclosure Statement before making any decision to invest. Refer to our Financial Services Guide (FSG) for more information at For Recipients in Hong Kong: The Report is distributed by Morningstar Investment Management Asia Limited, which is regulated by the Hong Kong Securities and Futures Commission to provide services to professional investors only. Neither Morningstar Investment Management Asia Limited, nor its representatives, are acting or will be deemed to be acting as an investment advisor to any recipients of this information unless expressly agreed to by Morningstar Investment Management Asia Limited. For enquiries regarding this research, please contact a Morningstar Investment Management Asia Limited Licensed Representative at For Recipients in India: This Investment Research is issued by Morningstar Investment Adviser India Private