Morningstar shows no favourites with downgrades

Shrugging off recent ructions surrounding its management,Morningstarhas downgradedBNP ParibasandMerrill Lynch Investment Managers (MLIM), dropping the first to one star and the latter to three stars.

The research house says following a qualitative reassessment of BNP’s funds, the downgrade was prompted by the group’s prolonged staff turnover and continuing poor performance by its funds.

According to Morningstar’s ratings report, BNP has suffered a steady flow of significant senior management departures including chief investment officer and head of asset allocation Robert Ellis, who left in July, and group head of fixed interest Rohan George who left the group in June. The report also says the instability of the senior investment personnel has been worsened with the September resignation of head of Australian equities, Brian Ingham.

In Morningstar’s view, the departures signal concerns for BNP Paribas’ strategic team as it has now been whittled down from four to two, leaving David Roberts and economist Bridgette Leckie in charge. It is understood that with the departures, Roberts is now responsible for senior investment strategies duties, is head of asset allocation, head of fix interest and in charge of monitoring subcontracted investment managers.

Morningstar has also downgraded each of BNP Paribas’ core sectors from a one star to a zero rating. Among the sectors downgraded include asset allocation, Australian fixed interest, Australian listed property, and Australian equities small companies.

In response to the ratings, BNP Paribas expects to announce the appointment of Fischer Francis Trees & Watts to the management of its Australian fixed income portfolio bonds during November. After the new management has been appointed, Morningstar will reassess the group’s Australian fixed interest management capabilities.

In downgrading MLIM from four stars to three stars, Morningstar says it believes consistently poor performance by the division owned by global manager, Merrill Lynch, was behind the downgrade.

According to Mornginstar, while many individual sectors within the group were upgraded, the trend rating was downgraded because of the global organisation. The report says while local profitability has been positive and its relatively narrow product range has expanded parent earnings, MLIM had been adversely affected by the downturn in global equity markets.