Morningstar - Q1 2023 - 21

EXHIBIT 2
The Best Parents These global asset
managers have High Parent Pillar
ratings from Morningstar analysts.
Baillie Gifford
Baird
Capital Group
Dimensional
Dodge & Cox
FMI
Greencape Capital
Jensen
Moneta Asset Management
Primecap
T. Rowe Price
Unigestion
Vanguard
Source: Morningstar Direct. Data as of Oct. 31, 2022.
Morningstar isn't immune to fraud. Our ratings
on AllianzGI's Structured Alpha funds were
wrong, in large part because we received the same
doctored information others did, including a
discussion of risk-management practices that
led us in February 2020 to upgrade the strategy's
Process to Above Average from Average.
That upgrade, combined with the team's Above
Average People rating, had resulted in a
Morningstar Analyst Rating of Bronze for its
cheapest share classes. Our missed call
notwithstanding, in the immediate aftermath of
the funds' early 2020 catastrophic losses,
Morningstar placed the strategy under review
in late March of that year and downgraded
it to Negative in April.
for the criminal misconduct of its now former
employees. Virtus had no part in the fraud,
and it rightly retained some management teams
of the funds affected by AllianzGI's ban while
changing others.
Still, there were earlier signs in at least one
instance that Virtus' oversight left something
to be desired. Virtus Global Allocation
PALLX (formerly Virtus AllianzGI Global Allocation)
imported its process from Europe in 2016,
transitioned to a sustainable focus in 2019, and
lost several managers from 2020 to 2021. Neither
has Virtus distinguished itself through subsequent
changes to Global Allocation. While Virtus
brought Global Allocation's lead manager Heather
Bergman in-house, she has lost access to key
personnel amid increased duties and now
oversees a fund with two subadvisor teams whose
expertise does not match their role. The value
shop NFJ runs a sustainable mandate behind 30%
of the fund's targeted equity weighting but
has no record running such strategies. Similarly,
it's questionable that emerging-markets
debt specialist Stone Harbor has the kind of core
bond capabilities that the fund needs.
After the SEC charged AllianzGI with fraud in
2022, Morningstar downgraded its Parent rating to
Below Average from Average. AllianzGI, though,
did not previously have an Above Average
Parent rating, much less a High one. Morningstar
reserves the High rating for top-tier firms
( EXHIBIT 2 ) that repeatedly prove themselves
worthy of trust in their approach to hiring
and monitoring talent, whether internal or external.
Firms like this address problems before they
multiply, not afterward.
Elizabeth Templeton is an associate manager research
analyst at Morningstar Research Services LLC.
Alec Lucas, Ph.D., is a manager research director at
Morningstar Research Services LLC.
strikes in August, which is the highest number of
work stoppages occurring in a month in the
country since 1990, according to the Office for
National Statistics.
The most significant labor disputes are in the
education sector, closely followed by
transportation and storage. On Nov. 23, the
University and College Union announced
that more than 70,000 staff at 150 universities
across the U.K. voted for industrial action
in demand for better pay, working conditions,
and pensions. This is reported as the biggest
strike in the history of higher education
and the first successful attempt in the education
sector since the 2016 Trade Union Act, which
restricted unions' ability to call a strike.
Industrial action is usually caused by a
combination of factors: wage demands, working
conditions, and management policies. The
most common issues that lead to a strike concern
pay, according to Industrial Action Monitor.
High inflation, therefore, elevates the likelihood
of labor disputes in the absence of sufficient
salary compensation. For example, strikes
in the education sector doubled in 2011 when
inflation was persistently higher than the
increase in weekly salaries.
Labor Strikes Threaten
Economic Disruption
GREATER EUROPE
United Kingdom
With inflation rising above 11%, it has become
harder for employers in the United Kingdom
to meet the salary expectations of employees who
are asking for better pay to keep up with the
rising cost of living. The U.K. experienced 75
Meanwhile, disputes in the transportation and
storage sector have been rising since June
2022 and have more detrimental implications for
economic activity. Strikes on the railways at
the Liverpool and Felixstowe ports and at the
Royal Mail are examples of high-profile industrial
action that created severe disruptions in
transportation, logistics, and delivery services.
The economic consequences of the strikes
in these sectors could take a toll on the supply
chain, which in turn can affect other industries,
such as manufacturing. It is estimated that
the Felixstowe strikes in August led to more than
$800 million in lost trade. Unless a collective
agreement is reached between unions and
employers on wage increases, these disputes
may further disrupt economic activity.
Salary increases have been lower than inflation
in many sectors. EXHIBIT 1 shows the September
2022 figures for nominal wage increases
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21
https://www.morningstar.com/authors/2490/elizabeth-templeton https://www.morningstar.com/authors/1776/alec-lucas https://www.morningstar.com/funds/xnas/pallx/quote https://www.morningstar.com/funds/xnas/pallx/quote http://www.morningstar.com/products/magazine
Morningstar - Q1 2023

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