There are now 182 FE Alpha Managers representing the top 10 per cent of managers running funds available to UK retail investors.
The FE Alpha Manager ratings are designed to highlight talent, skill and experience and managers are judged according to their track records since 2000, with extra weighting for those with the longest track records to highlight the benefits of experience.
The rating is based on three main components: risk-adjusted alpha, consistency of outperformance versus the benchmark and outperformance in both rising and falling markets.
“The FE Alpha Manager Ratings assess performance throughout a manager’s entire career, across all the funds he or she has managed and are designed to reward skill, consistency, alpha generation and downside protection,” Rob Gleeson (pictured), head of FE Research, said.
“The ratings are a quantitative, independent signpost for investors and advisers seeking to identify the best and brightest managers at the helm of UK retail funds.”
The ratings were launched in 2009 and there have been 30 managers who have held the rating in each of the last seven years. These include the likes of First State’s Angus Tulloch, M&G's Richard Woolnough and UK equity income guru Neil Woodford – though we will focus an entire article on these “hall of fame” members next week.
There are also nine managers who have regained FE Alpha Manager status this year, having lost it in previous re-balancings, and among those are Adrian Gosden at Artemis, Baillie Gifford’s John MacDougall and Sonja Uys – manager of the highly-rated Insight Absolute Insight fund.
However, in this article, we will focus on the new entrants as well as flagging up some of the household names who have recently lost their rating.
Starting in the UK equity space, one of the most exciting entrants to the list is George Godber, who heads up the highly-rated CF Miton UK Value Opportunities fund with Georgina Hamilton.
Godber only launched his £150m fund in March 2013, but has gained quite a following among fund buyers as he had already built-up a strong track record running UK equity funds at FP Matterley.
According to FE Analytics, CF Miton UK Value Opportunities has been the seventh best performing portfolio in the highly-competitive IA UK All Companies sector since its launch with returns of 32.69 per cent, more than doubling the gains of the FTSE All Share over that time.
Performance of fund versus sector and index since Mar 2013
Source: FE Analytics
The manager, who invests in companies which he considers to be undervalued by the wider market, considerably outperformed in the rising market of 2013 and was top decile in last year’s far more difficult conditions.
Other new FE Alpha Managers in the UK equity sectors include Jamie Seaton – whose five crown-rated GVO UK Focus fund has outperformed the IA UK All Companies sector in every calendar year since he took charge in 2009 – and the Schroder Recovery and Income duo of Nick Kirrage and Kevin Murphy.
We will take a closer look at their funds in an article over the weekend.
The standout new entrant in the global equities space is Terry Smith, who has taken significant inflows into his five crown-rated Fundsmith Equity fund and recently launched an emerging market investment trust.
The now £3bn Fundsmith Equity fund opened to investors in November 2010 and Smith planned to shake-up the “broken” fund management industry by building a low cost, concentrated and simple portfolio of high quality companies.
“[The fund is] 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,” Smith said.
Smith’s fund has been the fourth best performing portfolio in the IA Global sector since its launch in November 2010.
Fundsmith Equity has returned 102.99 per cent while its MSCI World benchmark has returned 61.04 per cent. It has also been top decile for its annualised volatility, Sharpe ratio – which calculates risk-adjusted returns – and its maximum drawdown, which measures the most investors would have lost if they had bought and sold at the worst possible times.
Performance of fund versus sector and index since Nov 2010
Source: FE Analytics
Geoff Legg and Charles L. Heenan on the Kennox Strategic Value fund, which also sits in the IA Global sector, have joined Smith on the list of new FE Alpha Managers while there have been 12 new managers who run regional equity funds in either the developed and emerging markets to have gained the rating this time around.
Turning to the bond and multi-asset space now and M&G’s Steven Andrews is one name that is worth flagging up.
Andrew joined the group in 2005 and launched the Episode Income fund, which sits in the IA Mixed Investment 20%-60% sector, in November 2010. It has started to gain a lot attention among both advisers and private investors due to the manager’s focus on income generation – its pays out every month – and capital protection.
The £294m fund has considerably outperformed the sector since its launch with returns of 44.75 per cent and investors who bought £10,000 of units when it opened would have since earned £1,750 in dividends. As of December 31st 2014, the fund yields 3.22 per cent.
M&G Episode Income is a very traditional and simple multi-asset income fund as Andrews currently holds 49.55 per cent in global equities, 24.85 per cent in government bonds, 16.94 per cent corporate bonds, 5.3 per cent in property and 3.36 per cent in cash.
Within the more alternative IA sectors, Guinness Global Energy manager Will Riley, First State Global Listed Infrastructure manager Andrew Greenup and L&G UK Property manager Michael Barrie have all become FE Alpha Managers this year.
Of course, within every rebalancing there will be managers who lose their status but this year there have been major casualties.
Some of the big names to have fallen off the list are Jupiter’s Cedric de Fonclare, Richard Plackett on Blackrock UK Special Situations, Stuart Rhodes – whose £9bn M&G Global Dividend underperformed for the first full calendar year since its launch in 2008 last year – and Nigel Thomas, who has a very enviable long-term track record on AXA Framlington UK Select Opportunities.
Marcus Brookes has also been dropped, following the recent poor performance of his Schroder MM range relative to its peers.
Brookes has become increasingly bearish on global equities – notably the US market– and the bond market, which he thinks is dangerously over-priced and has therefore opted to hold a huge amount of cash.
His £1.4bn Schroder MM Diversity fund has 31 per cent in the money market and given that both bonds and US equities had a phenomenal year in 2014, it shouldn’t come as much of a surprise that it struggled last year.
Performance of fund versus sector in 2014
Source: FE Analytics
Though Schroder MM Diversity has nearly doubled the IA Mixed Investment 20%-60% sector’s average return since Brookes and co-manager Robin McDonald took charge in October 2007, it was bottom decile last year with a return of just 1 per cent.
David Coombs, who has also voiced his concerns about the current market, is another multi-asset manager to have lost his FE Alpha Manager status as his Rathbone funds have been through a difficult period.
