Specialist healthcare funds, infrastructure funds and smaller companies funds are among those that complicate the issue.
To get a better idea of the funds that have done consistently well against their real peers, it is useful to look at those with the best annualised alpha against the appropriate benchmark over set periods – in this case, five years.
The fund to add the most value to its benchmark over this time is the £41.6m McInroy & Wood Smaller Companies fund, which has five FE Crowns.
FE Alpha Manager Tim Wood and his team have not selected their own benchmark, but if the fund is measured against the MSCI World Small Cap index, it has added value worth 11.2 per cent a year.
It has to be borne in mind that small cap funds tend to outperform – or underperform – their benchmark by larger figures for a number of reasons, including the greater growth potential in the companies in which they invest.
However, the boutique fund has done far better than the other global smaller companies funds in the sector with a track record that long, including the much larger and higher profile Invesco Perpetual Global Smaller Companies fund, which has added alpha worth 2.11 per cent to the same benchmark.
Global smaller companies' annualised alpha over 5yrs
| Name | Alpha | Volatility |
|---|---|---|
| Invesco Perp - Global Smaller Companies | 2.11 | 20.17 |
| McInroy & Wood - Smaller Companies | 11.2 | 18.15 |
| MSCI The World Index Small Cap | 0 | 22.4 |
Source: FE Analytics
At the top of the total return tables over the last three and five years sit two specialist healthcare funds: L&G Global Health & Pharmaceutical Index – the best-performing fund over three years – and Schroder Global Healthcare – which has the best returns over five.
This is to a great degree thanks to the performance of the sector they invest in rather than the skills of the managers, which is likely to always be the case with managers restricted to certain sectors.
They do not come close to the likes of McInroy & Wood Smaller Companies on a "value-added" basis.
The L&G fund uses a bespoke index from FTSE that includes the healthcare and pharmaceutical companies on the FTSE World index, and it operates as a tracker.
This means there is little sense in comparing it against a benchmark rather than simply to its peers in the area.
The Schroder Global Healthcare fund, on the other hand, is actively managed and takes the MSCI AC World Health Care index as its benchmark.
The fund has added alpha worth 2.08 per cent to that benchmark over the past five years, according to FE Analytics data.
Global healthcare funds' annualised alpha over 5yrs
| Name | Alpha | Volatility |
|---|---|---|
| Schroder - Global Healthcare | 2.08 | 17.24 |
| L&G - Global Health & Pharmaceutical Index | n/a | 18.25 |
| MSCI ACWI/Health Care | 0 | 17.66 |
Source: FE Analytics
Funds run for charities were excluded from our list, and reassigned benchmarks when appropriate.
Once that was done, some interesting names came at the top of the list, including many little-known boutiques.
The fund that came out on top was S&W Kennox Strategic Value, which FE Trustnet has written about at length in the past.
The £150m fund is totally unconstrained and does not take a benchmark. However, against the MSCI World index it has produced annualised alpha worth 9.65 per cent over the past five years, more than any of its peers.
It is also the second-least volatile of the funds being considered, with an annualised volatility of just 10.94 per cent.
The second-placed fund is Morgan Stanley Global Brands, which has added alpha worth 8.68 per cent its benchmark – again, the MSCI World.
Global funds' annualised alpha over 5yrs
| Name | Alpha | Volatility |
|---|---|---|
| S&W - Kennox Strategic Value | 9.65 | 10.94 |
| Morgan Stanley - Global Brands | 8.68 | 16.15 |
| Baillie Gifford - Global Discovery | 7.59 | 19.66 |
| CBF - Global Equity Income |
7.38 | 18.52 |
| Trojan Capital |
5.85 | 11.3 |
| Henderson - Global Growth | 5.69 | 20.78 |
| BNY Mellon - Long Term Global Equity | 4.2 | 17.38 |
| CF - Adam Worldwide | 4.06 | 16.72 |
| S&W - Aubrey Collective Conviction | 3.69 | 10.24 |
| Margetts - Greystone Global Growth | 3.65 | 15.89 |
Source: FE Analytics
The £30m Baillie Gifford Global Discovery fund has added 7.59 per cent of alpha a year to its benchmark, slightly ahead of the 7.38 per cent added by the CBF Global Equity Income fund to the MSCI World index.
The £89m Trojan Capital fund takes the FTSE All Share as the benchmark it aims to beat, but it invests globally, which makes the MSCI World a more appropriate yardstick.
Gabrielle Boyle’s fund has added alpha worth 5.85 per cent to that benchmark over the past five years, with one of the lower volatility scores on the list – 11.3 per cent.
The least volatile is the tiny S&W Aubrey Collective Conviction fund, which has five FE Crowns but amounts to only £8.3m in AUM.
The fund of funds has an annualised volatility score of 10.24 per cent, and has added alpha worth 3.69 per cent to the MSCI World index over the past five years.
In the previous article in the series , FE Trustnet looked at the strategic bond funds that have added the most value to their benchmark.