Risk-rated funds attempt to maximise returns while falling within a certain band of volatility, and have become increasingly popular in recent years.
However, it has so far been impossible to measure the funds against each other, which the new initiative resolves.
The data shows that the Standard Life MyFolio portfolio range run by Bambos Hambi tops the tables over three years in many of the sectors.
Michael Holland, managing director of FE, said: “Until now, advisers considering risk-targeted funds have had little objective support when making like-for-like comparisons.”
“These funds tend to be found in a variety of sectors with no consistent common ground in terms of the assets they invest in, or investment strategy.”
“It seemed a logical step to review this broad family of vehicles and group them in such a way that advisers can make informed decisions when judging one fund against another.”
“We hope that this universe will become an important reference point within the risk-targeted multi asset fund selection process.”
The universe of risk-targeted funds is divided into five risk bands with funds assigned a band according to their FE Risk Scores.
These scores measure the historic volatility of an investment instrument compared to the FTSE 100, where the latter index is fixed as 100. Funds that are less volatile have a lower score and vice versa, with cash scoring zero.
The volatility of funds can change over time, and so can their sector membership. To avoid excessive churn between bands, funds must fall outside the risk parameters of their current band for more than 16 weeks before being reassigned.
The first sector includes funds with a risk score up to 30, the second from 30 to 50, the third from 50 to 70, then 70 to 85 and a fifth sector includes funds with a rating of 85 or above.
Funds with less than 18 months’ track record will be placed in a sixth sector called “Insufficient track record”.
In the first sector, UK RMA Risk Band 1, the Standard Life MyFolio Managed II portfolio tops the rankings over three years with returns of 19.6 per cent. It is second over the past 12 months with returns of 3.46 per cent.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The £459m portfolio is available through Trustnet Direct with ongoing charges of 0.96 per cent. Its stablemate Standard Life MyFolio Multi Manager has returned 19.4 per cent over the same time.
The FP Verbatim Portfolio run by Henderson’s Bill McQuaker, has returned 17.99 per cent over three years while the Standard Life MyFolio Market I fund, also run by Bambos Hambi, has returned 17.27 per cent.
In UK RMA Risk Band 2 it is M&G Episode Income, managed by Steven Andrew and Tony Finding, which tops the performance tables.
The £225m fund has made 25.99 per cent over the years, topping the list in a sector that displays an FE Risk Score of between 30 and 50.
Andrew’s fund has 41.4 per cent in equities and 39.4 per cent in government bonds along with 13.4 per cent in corporate bonds. The majority of the fixed interest exposure is outside the UK.
Hambi’s Standard Life MyFolio Managed III fund has returned 23.29 per cent over the same time, putting it second in the table. Over one year it has done better than the M&G fund, returning 5.83 per cent to the latter’s 2.62 per cent.
The portfolio has 21.6 per cent in UK corporate bonds, 18.95 per cent in UK equities and 16.8 per cent in alternatives including a 13.1 per cent weighting to Standard Life GARS.
The third place portfolio is Toby Ricketts £153m Margetts Providence Strategy fund, which has returned 23.23 per cent over three years and has a very different asset mix again. It has 39 per cent in UK equities and 22 per cent in bonds along with 22 per cent in cash.
The fourth-placed fund is the Henderson Cirilium Strategic Income fund of investment trusts, which further underlines the eclectic nature of these sectors.
Source: FE Analytics
In UK RMA Risk Band 3 it is the MyFolio range that dominates, with Standard Life MyFolio Multi Manager V returning 24.96 per cent and Standard Life MyFolio Multi Manager IV returning 24.92 per cent. The former also marginally outperformed over the past 12 months.
Standard Life MyFolio Managed IV has returned 24.51 per cent. All three funds are run by Bambos Hambi.
The £18m IFSL Sinfonia Income & Growth portfolio, which has five FE Crowns, returned 23.38 per cent over the period.
Hambi’s range also tops the charts in the fourth sector for those funds with a risk score between 70 and 85. The Standard Life MyFolio Managed V fund has returned 26.56 per cent.
CF Cornelian Progressive has returned 26.16 per cent and CF Cornelian Growth 24.37 per cent. Both are run by Hector Kilpatrick and are available through Trustnet Direct.
UK RMA Risk Band 5 is the more diverse sector, including funds with a risk score above 85. An investor would hope that taking on that extra risk would bring extra return, but our data shows the top funds in the sector have actually underperformed those in the Risk Band 3 and Risk Band 4 sectors.
Architas MA Active Growth has returned just 21.21 per cent over the time, the best returns in the sector. However, over five years it has managed a much more impressive 86.81 per cent, also the best result in the sector.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Run by Caspar Rock and Stephanie Carbonneil, the £88m fund has large positions in Standard Life UK Equity Unconstrained as well as JOHCM UK Equity income and First State Global Emerging Markets Leaders.
The £59m Margetts Greystone Global Growth fund has the second best returns over three years, with 20.06 per cent.
The portfolio has just 3 per cent in UK equities through the CF Miton UK Multi Cap Income fund and 31 per cent in US equities. It has 27 per cent in Asia and 12 per cent in emerging markets, which has been a drag on performance.
Five FE Crowned CF 7IM Adventurous is the third best performing funds in the sector with returns of 18.48 per cent while Margetts International Strategy, run by Toby Ricketts, has returned 18.36 per cent.
