Each fund has to have at least a three-year track record to qualify for an FE Crown Rating. They are judged on their performance according to alpha generation, volatility and the consistency with which they have beaten their benchmark over the three years to 31 December 2013.
In this article, FE Trustnet highlights five of the most notable portfolios to gain a five crown-rating at the first attempt.
Fundsmith Equity
Fundsmith Equity is one of the most high-profile funds to receive a five crown-rating at the first time of asking.
The fund is headed up by outspoken city stalwart Terry Smith who launched the portfolio to “shake up the broken fund management industry”. Investors have piled into the portfolio to gain access to Smith’s expertise and, as a result, its AUM now stand at more than £1.6bn.
Smith has rewarded his investors. The fund is the sixth-best performer in the highly competitive IMA Global sector over three years with returns of 48.68 per cent and has beaten its benchmark – the MSCI World index – by more than 18 percentage points.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Smith runs a very concentrated portfolio, holding just 25 companies. He describes them as “just a small number of high quality, resilient, global growth companies that are good value and which we intend to hold for a long time, and in which we invest our own money”.
The manager explained more about his philosophy in a previous FE Trustnet article.
Unilever, Imperial Tobacco and Reckitt Benckiser are three of the UK stocks that have made it into Smith’s fund.
Fundsmith Equity has a total expense ratio (TER) of 1.7 per cent and requires a minimum investment of £1,000.
Artemis Global Income
Sticking with the global theme, Jacob de Tusch-Lec’s Artemis Global Income fund also made the list.
De Tusch-Lec has managed the £463m fund since its launch in July 2010. Over that time it has been the best-performing portfolio in the IMA Global Equity Income sector, with returns in excess of 70 per cent, and has beaten the MSCI AC World index by close to 30 percentage points.
The majority of those returns have been achieved over the last two years, however, as the fund was an average performer in 2011 with losses of 5 per cent.
Artemis Global Income has a yield of 3.94 per cent, which it pays out twice a year, and it has increased its net distribution in each of the last three calendar years.
The manager invests across the global equity market. Although North American equities are de Tusch-Lec's largest regional weighting – making up 26.7 per cent – he is underweight compared with the benchmark. Instead he is taking punchy positions in the eurozone and the EMEA region.
The fund requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.64 per cent.
Somerset Emerging Markets Small Cap
Emerging markets have had a torrid run of late, with sentiment turning increasingly negative over issues such as the economic slowdown in China and falling commodity prices.
FE Alpha Manager Mark Asquith’s Somerset Emerging Market Small Cap fund was awarded the coveted five crown-rating due to the fact it dealt with the volatility more effectively than its peers.
The fund has actually lost money since its launch in November 2010. However, it has been a top-quartile performer over that time as the IMA Global Emerging Markets sector and the MSCI Emerging Markets index have fallen much further.
Performance of fund vs sector and index since Nov 2010
Source: FE Analytics
The fund has consistently been first or second quartile in each of the discrete calendar years since its launch and given the fact it only invests in smaller companies – which tend to be more volatile in times of market stress – the feat is all the more impressive.
Unfortunately for investors who like the look of the fund, Somerset decided to soft-close it in May 2011 when it reached AUM of $250m. However, it is available on a number of fund platforms.
The OCF is 1.67 per cent.
Cazenove Diversity Income
Marcus Brookes and Robin McDonald are, along with the Jupiter Merlin team, commonly regarded as two of the best fund of funds managers in the business.
Their Cazenove Multi-Manager range has become increasingly popular with advisers and private investors alike over recent years due to the managers' consistent outperformance. However, their Cazenove Diversity Income fund is still relatively small at just £84m.
It is a top-quartile performer in the IMA Mixed Investment 20%-60% Shares sector over three years with returns of 25.29 per cent. It also boasts top-quartile returns over the past 12 months.
As Brookes recently told FE Trustnet, the managers are becoming increasingly cautious on markets as they see little value in bonds and are concerned about excessive valuations in equities.
Instead, as with the majority of their funds, Brookes and McDonald have a high 22 per cent cash weighting in the Diversity Income fund.
They have also taken a large bet on RWC Enhanced Income, which is their largest individual position, making up a hefty 18 per cent of the fund’s assets.
The fund requires a minimum investment of £1,000 and has an OCF of 1.75 per cent.
Threadneedle UK Absolute Alpha
Targeted absolute return funds have become increasingly popular with cautious investors who have had to re-think their traditional high weighting to fixed income.
Threadneedle UK Absolute Alpha, which is headed up by Mark Westwood and Chris Kinder, has recently achieved a five crown-rating. It differs from most other funds in the IMA Targeted Absolute Return sector as it only invests in equities, predominantly in the UK.
However, the managers will use derivatives within the portfolio in order deliver a positive return over any given period.
They have so far achieved this feat since the fund’s launch in September 2010.
According to FE Analytics, the Threadneedle UK Absolute Alpha fund returned 3.81 per cent in 2011 (the average fund in the sector lost money that year), 2.37 per cent in 2012 and 10.63 per cent in 2013.
Performance of fund vs sector and index since Sep 2010
Source: FE Analytics
As a result, the fund has returned a healthy 22.9 per cent since launch.
Currently, short positions make up 20 per cent of the fund. Threadneedle UK Absolute Alpha has an OCF of 1.64 per cent and requires a minimum investment of £1,000.
