Active Managed |
 RSS Feed
|
Despite Financial Services Authority's prohibitions on investments in certain asset classes, the funds in this sector still have a wide-ranging remit. One of the principal concerns revolves around fees and charges: Initial Charges come in at between 5-5.5%, and the Annual Management Charge can be as high as 2%. Theoretically, investors pay these premium fees in recognition of the enhanced returns that their managers could deliver through their skill in deploying a more adventurous style of equity investment.
According to Financial Express, there are 122 funds in this sector, up by 33 from the 89 constituents three years ago. Over the period to May 2008, the funds with 3-year histories returned between 20.26% at the bottom of the table, and 122.33% at the top, creating an average sector return of 39.27%. Investors could expect this to be a riskier area of operation, but volatility values range between 6% and 18%, with a sector average of 10.79% - not excessive.
The volatility broadly tends to follow a risk/reward pattern with the lower returns accompanied by lower risk and vice versa. R-squared, indicates a high degree of conformity within the sector, with just 5 funds displaying an r-squared of less than 0.75.
In relation to risk-reward metrics, as extracted from Financial Express Analytics, only 9 funds display better results than the sector average. One particular fund that outshines all others taking these metrics into consideration, is the Kleinwort Benson CF Ramorgan fund. This particular fund produces a sterling 3 year performance of 49.5% with an 8.1% risk and an r-squared result of 0.6.
The sector as a whole has taken a hit over recent months as a result of the liquidity crisis experienced across global economies, with active fund managers finding it increasingly difficult to generate alpha in this tumultuous environment. This poor performance is reflected by the sector average loss of 5.6% over the last 6 months. Only 7 funds produced a positive return over this period, with the 3 Crowns rated
Kleinwort Benson CF Ramorgan
fund amongst them, gaining an impressive 1.62%.
Although all 89 funds with 3 year track records display a positive sharpe ratio, only 41 funds produce alpha over the FTSE All Share for this period, with a sector average alpha of -0.12, which in relation to the relatively high charges investors face within this sector, not a great bargain if you are misfortunate enough to pick a negative alpha fund.
These unsatisfactory results lead on to the lengthened debate of passive versus active management. Academic studies have shown that the long-term historical performance of passive funds, (ones that merely track an index, without any intention to outperform it, hence maintaining lower fees), produce better cost-adjusted returns than active funds, which on average fail in trying to ‘beat’ the market. This revelation has fuelled the growth of passive funds over recent years, and has led to the conclusion that investors are better off in trying not to outperform the market at all, and merely track it, whilst having the benefit of lower costs.
This conclusion is also supported by our research, as the actively managed 3 year sector average return of 39.27% fails to outperform the FTSE All Share Index return of 45.63% over the same period. In fact, according to Financial Express Analytics, only 4 funds offer a better risk reward result over the FTSE All Share Index, with once again Kleinwort Benson’s CF Ramorgan fund produces the best historic results.
Source of all data: Financial Express Analytics
|
|
in association with
Active Managed
IMA definition of sector
Funds which offer investment in a range of assets, with the Manager being able to invest up to 100% in equities at their discretion. At least 10% must be held in non-UK equities. There is no minimum Sterling/Euro balance and equities are deemed to include convertibles. At any one time the asset allocation of these funds may hold a high proportion of non-equity assets such that the asset allocation would by default place the fund in either the Balanced or Cautious sector. These funds would remain in this sector on these occasions since it is the Manager's stated intention to retain the right to invest up to 100% in equities.
|
|
|
|