Morningstar has downgraded H20 Asset Management’s Allegro strategy to negative over what it claims is poor stewardship and “rampant” risk-taking issues.
Morningstar put the fund’s rating under review last year after concerns about liquidity and “appropriateness of several holdings”.
Matias Möttölä, associate director for multi-asset and alternatives manager research, said: “Evidence of poor stewardship and rampant risk-taking at H2O Asset Management has continued to mount even after concerns around illiquid corporate bonds at their funds arose in mid-2019.”
According to Möttölä, the fund’s bold macro bets have led to extreme losses in the market turbulence of March 2020 and were not adequately reined in by formal risk controls, subsequently leading to its downgrade to negative from neutral.
He added that the portfolio team is sizeable and experienced but their strengths were outweighed by worries around its stewardship.
A spokesperson for H20 Asset Management said the firm strongly disagreed with Morningstar’s decision to downgrade the fund rating.
“H2O’s risk management processes are dynamic and the sizing of trades in light of recent market volatility are being actively managed. A risk management framework that allows for greater volatility also helps to deliver superior returns while lower volatility typically means lower returns,” the spokesperson said.
“Risks must also be assessed with regards to the investment horizon of each fund which, in the case of H2O Allegro, is three years.”
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