In 2012 and 2013 the S&P 500, FTSE All Share and MSCI Europe ex UK made huge double-digit returns. While the US index maintained a strong rise last year, the UK and Europe saw a largely flat market characterised by recurring worries about a host of economic and political issues.
Performance of indices over 3yrs
Source: FE Analytics
FE’s Crown Ratings, which evaluate funds according to alpha generation, volatility and the consistency with which they have beaten their benchmarks over three years, have just been rebalanced and cover these differing market conditions.
The top 10 per cent of funds are awarded five FE Crowns under the rating system, with the following 15 per cent receiving four FE Crowns.
Of those which scored the full five FE Crowns, nine funds made the maximum leap from previously having just one crown.
Rob Gleeson, head of FE Research, said: “There has been a big upgrade in the alpha component of the FE Crown Ratings this year, which means all of the rated managers have been able to add a significant amount of value over the last three years.”
One such example is the £2.6bn Fidelity Special Situations fund, run by FE Alpha Manager Alex Wright.
The manager took over the fund in January 2014 from Sanjeev Shah. Over 2014 it lost 1.68 per cent and ended the year in the bottom quartile of the IA UK All Companies sector, having previously beaten the FTSE All Share and even the S&P 500 in 2013 and 2012.
Performance of fund, sector and index in 2014
Source: FE Analytics
Wight says this underperformance was largely because his value/contrarian style has been out of favour. He also attributes an overweight position in mid and small-caps, stock specific issues and not owning high profile M&A targets as the main causes of his torrid year on the fund.
He is also expecting a turbulent year for markets in 2015 due to uncertainty around the UK election, but is taking a contrarian view on the banking sector with anticipation of change close on the horizon.
“Companies such as Lloyds and HSBC both trade at undemanding valuations and have attractive features which investors have not yet woken up to,” he said.
The £400m First State Global Resources fund was another portfolio to shift up from one to five crowns. It has lost 37 per cent over the past three years but has seen its fortunes start to turn in the past month with the fund almost 10 per cent up.
Commodities and energy stocks, the fund’s specialist area, have had a torrid few years with the end of the commodity super-cycle and a slowdown in Chinese demand for natural resources most widely seen as the cause, as well as the more recent plummet in the oil price.
Joanne Warner has headed up the fund since 2006 over which time it is down 12.47 per cent although as the graph below shows it has seen several periods of significant upside.
Performance of fund, sector and index since December 2006
Source: FE Analytics
The £319M CF Ruffer Pacific fund also made the maximum leap up the fund ratings from one crown to five.
Sitting in the IA Specialist sector, it uses the MSCI Asia-Pacific Total Return index as a benchmark and is headed up FE Alpha Manager Mary McBain.
It had a bad 2011, losing more than 15 per cent, but has now has a track record of three years of consistent double-digit returns.
On the fixed income side, Premier Strategic High Income Bond and Aberdeen High Yield Bond have both leaped up from one to five FE Crowns.
The two funds both had fairly a difficult 2014, following strong performance in the previous few years.
Performance of funds over three years
Source: FE Analytics
Aberdeen High Yield Bond was top quartile in the IA Sterling High Yield sector in 2013 and 2012 but this fell to second quartile in 2014. It has a current yield of 6.6 per cent.
The Premier Strategic High Income Bond fund was bottom quartile last year, compared to top quartile in 2013 and 2012.
While last year was tough for both funds, 2011 – which has dropped out of the three-year performance period under which FE Crowns are scored – was even worse with both funds losing double digits by the end of the year as result of their exposure to the European sovereign debt crisis.
On the flip side there are also some notable falls from grace for several well-known funds.
These include the Lindsell Train Japanese Equity fund, which fell from five FE Crowns to one, the £883m Schroder UK Opportunities fund, which fell from four crowns to one, and the £200m PFS Monument Bond fund, which fell from five crowns to one.