The system uses four quantitative ratings to effectively analyse funds from all angles: FE Crown Fund Ratings to highlight excellent funds; FE Alpha Manager ratings to highlight excellent managers; FE’s Group Awards to identify fund houses with a specific edge in a given asset class; and the consensus view of the adviser industry from the AFI panel of leading IFAs.
The FE Select 100 was rebalanced for the first time last week and saw a number of high-profile names drop off the list. The funds remain on the radar of Rob Gleeson and his FE Research team, but they say they are currently finding better opportunities elsewhere.
Here are five of the funds that have fallen off the list – and some possible alternatives:
M&G Managed Growth
Oliver Clarke-Williams (pictured), analyst on the FE Research team, says this £1.27bn vehicle has seen a deterioration in performance in recent years, as it relies heavily on commodities.
"M&G Managed Growth is an interesting one, although it is a mixed-asset fund it seems to be investing entirely in equities.""It mainly invests in other M&G funds, although does invest directly in equities it has a high conviction in."
"The fund saw its FE Crown Rating drop from three to one, which was the reason why it was dropped from the FE Select 100."
According to FE data, FE Alpha Manager Graham French’s fund has underperformed its FTSE World benchmark over three and five years, although it is still ahead over 10.
It has also fallen short of its IMA Flexible Investment sector average over three years.
Performance of fund vs sector and index over 10yrs
| Name | 1yr returns (%) | 3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| FTSE World Index | 19.03 | 31.81 | 56.47 | 194.15 |
| IMA Flexible Investment | 12.84 | 21.6 | 26.36 | 140.84 |
| M&G - Managed Growth | 8.31 | 15.82 | 33.89 | 267.06 |
Source: FE Analytics
Clarke-Williams says the fund is run with a similar mandate to French’s M&G Global Basics, in that it focuses on raw materials’ central role in global growth.
"An obvious alternative to this fund therefore is Global Basics as it is run by the same manager and concentrates on the same areas," said Clarke-Williams.
"If the investor is looking for another fund of funds they may wish to consider the Jupiter Merlin Growth Portfolio, which unlike the M&G fund is not restricted to their own range."
Jupiter Emerging European Opportunities
"A combination of factors weighed on this fund being demoted," said Clarke-Williams.
"Its FE Crown Rating dropped from three to two, manager Elena Shaftan lost her FE Alpha Manager status and some of the AFI panellists removed it from their portfolio."
"The reasons for these downgrades are easy to see as the fund has underperformed its index over each of the last four calendar years, although to be fair it has done very well year-to-date."
Performance of fund vs index over 5yrs
Source: FE Analytics
Clarke-Williams says that JPM New Europe – a new entrant on the FE Select 100 list – is a possible alternative.
"This sort of investment is obviously high risk but it is also high reward," he said. "JPM New Europe has a very similar mandate [to the Jupiter fund] but we believe ithas been more consistent in its level of returns."
"Like the Jupiter fund, it is primarily investing in central and eastern Europe and has a multi-cap approach. The fund has a four crown-rating and is managed by new FE Alpha Manager Oleg Biryulyov."
Schroder Japan Alpha Plus
Clarke-Williams says the FE Research team has been disappointed by the fund’s performance during the recent rally, which has contributed to its downgrade.
"The fund saw its FE Crown Rating reduce from four to three, following a previous downgrade from five to four in July 2012," he explained.
"We have been disappointed with the fund’s recent performance. As the name suggests, it tries to generate high Alpha, which results in the manager taking riskier bets than many of his peers."
"However, Nathan Gibbs has been unable to capture the full extent of the recent Japanese stock market rally."
"Traditionally we would expect a concentrated portfolio of investments to mean that it would suffer in down markets yet outperform in bullish ones."
Schroder Japan Alpha Plus has underperformed its sector over one and three years, as well as over one, three and six months. It is still ahead over five years, though.
Clarke-Williams points to Jupiter Japan Income as one of the few funds in IMA Japan that he rates, but says its income focus makes it very different to the Schroders vehicle.
He also likes the Baillie Gifford Japanese Smaller Companies fund, which is another new entrant to the FE Select 100. Although it sits in the IMA Japanese Smaller Companies sector, Clarke-Williams points out that the Schroders fund also has a small to mid cap bias.
Psigma Income
Clarke-Williams says the performance and approach of this fund have not really changed, but believes there are better opportunities presenting themselves elsewhere.
"Relative to expectations and particularly Bill Mott’s reputation, the fund has disappointed," he explained.
"That said, the fund has suffered due to a change in market sentiment which has seen a slight movement away from income investments and more towards growth investments."
"UK All Companies funds now outnumber UK Equity Income funds in the FE Select 100, whereas previously the opposite was true. There were certainly stronger UK Equity Income funds so this fund was ripe to be cut if we reduced these."
Performance of fund vs sector and index since launch
Source: FE Analytics
According to FE data, Psigma Income has returned 4.07 per cent since its launch in April 2007, underperforming both its sector and All Share benchmark, which have returned 17.86 and 27.2 per cent, respectively.
The fund has also underperformed over one and five years.
Co-manager of Psigma Income Neil Cumming highlighted the reasons for the fund’s underperformance in a recent interview with FE Trustnet.
For investors wanting to stay invested in the UK Equity Income sector, Clarke-Williams suggests stalwarts Invesco Perpetual Income and Artemis Income, or John McClure’s Unicorn UK Income portfolio for a slightly more contrarian play.
Aviva Inv Managed High Income
Clarke-Williams says the team has dropped this £85.4m fund from the list because of a change in management.
"Aviva Inv Managed High Income experienced a change in manager with the departure of former FE Alpha Manager Andrew Lake," he explained. "His replacement Chris Higham does not currently have such a stellar record."
"So far this change does not appear to have adversely affected the fund, but because there is an element of uncertainty surrounding the manager, we could not justify its continuing presence on the FE Select 100."
Lake has recently taken charge of the Mirabaud Global High Yield Bond fund. He warned against a "high yield trap" in a recent interview with FE Trustnet.
Clarke-Williams highlights Fidelity Extra Income as a good alternative with a very similar strategy to Aviva Inv Managed High Income.
The FE Select 100 is rebalanced once every six months. If you’re an industry professional, and want more information about how you can access the full list and the fund reports, go to www.feresearch.net