Morningstar Magazine - October/November 2017 - 32

Dispatches

three. Fidelity, Lyxor, and UBS UBS each launched
two new products.

0

10

20

30

40

50

60

0

10

20

30

40

50

60

Risk Factor Exposures of Global Large-Cap Equity Medalists
Volatility

Financial Health

Economic Moat

Volatility

Financial Health

Economic Moat

Valerio Baselli is an editor with Morningstar in France
and Italy.

Global Large-Cap
Equity Medalists Through
the ESG Lens
GREATER EUROPE

Germany

-1.0

-0.5

0

0.5

1.0

1.5

0.5

1.0

1.5

Source: Morningstar Direct. Data as of 06/20/2017.

Equity Region:

Greater Asia

Emerging
-1.0

Americas
-0.5

Europe ex-UK
0

Emerging

Americas

Europe ex-UK

Regional Exposure of Global Large-Cap Equity Medalists
Equity Region:

Funds with a high Morningstar Analyst Rating do
not necessarily have a high Morningstar
Sustainability Rating. The latter is based on a
fund's portfolio, while the Analyst Rating
is a forward-looking qualitative evaluation of funds'
merits, which includes factors that may not be
related to a fund's environmental, social, and
governance, or ESG, performance. But Morningstar
Medalists that have a High or Above-Average
Morningstar Sustainability Rating share many
common traits.
Compared with funds with the lowest Morningstar
Sustainability Ratings of 1 and 2 globes,
Medalist funds with 4 or 5 globes have had, on
average, a higher exposure to financially
healthy companies with Morningstar Economic
Moat Ratings, as measured by their financial
health and economic moat risk factor exposures
from the Morningstar Global Risk Model.
These standouts include BNY Mellon Long-Term
Global Equity (4 globes), MFS Global Equity
(5 globes), and MFS Global Concentrated Equity (5
globes), all rated Silver. These funds have also,
on average, exhibited a lower exposure to volatile
stocks, as indicated by their volatility risk factor
exposures. Overall, this indicates that 5- and
4-globe medalists favor high-quality companies.
As outlined in the Morningstar Sustainability
Atlas, on a regional basis, companies domiciled
in the eurozone tend to have a strong ESG
performance relative to their global industry peers.

32

Morningstar October/November 2017

Greater Asia

0%

10

20

30

40

50

60

0%

10

20

30

40

50

60

Source: Morningstar Direct. Data as of 06/20/2017.

The United States, Asia, and emerging markets,
on the other hand, tend to have lower
scores overall, although the lag is less pronounced
for U.S. companies.

Gold-rated Murray International, however, has a
4-globe rating despite its elevated exposure
to companies domiciled in the emerging markets,
making it an exception within its peer group.

Looking at the regional exposures of global-equity
funds, we found that 5- and 4-globe funds
tend to have higher weightings in companies
domiciled in Europe (excluding the U.K.), compared
with 1- and 2-globe funds, as well as limited
exposure to Asian and emerging-markets stocks.
Tweedy, Browne International Value and
ValueInvest Lux Global, both rated Bronze, are
examples of such funds.

We also looked at the average price/earnings,
price/book, price/sales, and price/cash-flow ratios
of our positively rated global large-cap equity
funds within their Sustainability Rating
buckets and compared them with the broader
market, as represented by the Morningstar
Developed Markets Large Cap Index. On average,
5-globe funds, including Silver-rated MFS
Global Concentrated Equity and MFS Global Equity,
have had the largest allocations to stocks
with high valuations, as measured by their P/ E
or P/B ratios, which exceed the valuation
of the index. But there is no clear consistency
between the remaining Sustainability Rating
buckets. For example, the portfolios of funds with

According to Sustainalytics' underlying company
ESG research, emerging-markets firms generally
lag behind developed-markets companies
in their implementation of policies, governance
structures, and systems to manage their ESG risks.
Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2017
