Giles Hargreave has been the most consistent FE Alpha Manager since the turn of the millennium, according to latest FE Trustnet study, as the small cap veteran has only underperformed against his peer group composite in one of the last 15 calendar years.
Consistency of returns in one of the most attractive qualities in an active manager as while it is unlikely they will outperform in every year, those which have beaten their peers and their benchmarks time after time are often viewed as the best in the business.
In fact, consistent long-term outperformance is one of the main pillars of the FE Alpha Manager rating which was created to identify the most talented fund managers operating in the UK today.
Therefore, in this article, we highlight the current FE Alpha Managers which have been the most effective at beating their peer group composites over the longer term.
To qualify, all have to carry an Alpha rating, been running funds or trusts since January 1 2000 and not have taken any extended period away from fund management during the period in question. That criteria has reduced the current list of FE Alpha Managers from 175 to just 30, and as the table below shows, it is Hargreave who has come out on top.
Source: FE Analytics
It is often said that, given the sheer number of opportunities to choose from, the huge growth potential relative to mega-caps and lack of analyst coverage, smaller companies are one of the best areas for active managers to justify their often high ongoing charges and Hargreave has certainly proved that to be the case.
During the 15 year period, Hargreave has managed the Marlborough Special Situations, Marlborough UK Micro Cap Growth, Marlborough Nano Cap Growth, Marlborough Multi-Cap Income, Marlborough UK Multi Cap Growth funds along with various VCTs.
Combing all those returns and the returns of his differing peers over that time, the manager has outperformed in all but one full calendar year over the past decade and a half (which includes a whole host of differing market conditions) – the only exception being the falling market of 2002.
As can be imagined, that has led to strong outperformance from cumulative point of view. FE data shows, for instance, Hargreave has made 340.54 per cent for his investors over that time, beating his peer group composite by more than 300 percentage points in the process.
Performance of Hargreave versus peer group composite since 2000
Source: FE Analytics
Hargreave is renowned for his highly diversified approach and his Special Situations fund, which consists of 217 stocks and is top quartile in the IA UK Smaller Companies sector over one, five and 10 years, is one of the most popular in its asset class.
The now £895m fund features on the FE Select 100, for example, with our research team favouring the manager’s vast experience, investment strategy and in-depth stock analysis.
“Marlborough Special Situations is one of the strongest UK funds in terms of performance and quality of investment team,” the FE Research team said. “The analysts collectively have 125 years of market experience between them, while Hargreave started his career in 1969.”
“It is unusual to have such small amounts of money invested in high-conviction positions, but as the share prices of smaller companies can fluctuate more violently, this diversity limits the impact of a single high risk stock. It also highlights the manager’s ability to generate investment ideas due to the team’s large resource in the smaller companies area.”
Coming in joint second on the list of most consistent FE Alpha Managers are Leigh Harrison and Nick Train, who have both outperformed their peer group composites in 13 of the last 15 calendar years.
Regular FE Trustnet readers will have no doubt realised we are big fans of Train’s high conviction, low-turnover approach and while there are concerns about his current portfolio going forward following his stellar gains, his performances on his open-ended fund and two investment trusts have been outstanding.
Train’s focus on cash generative business with strong franchises has led him to mega-cap consumer goods companies such as Unilever, which has acted as a tailwind over recent years as ‘tourist’ fixed income investors have been forced into reliable dividend paying stocks by central banks for an attractive level of yield.
However, his chunky weightings in mid and small-caps have meant that his CF Lindsell Train UK Equity fund and Finsbury Growth & Income trust have still managed to outperform when investors are in a buoyant mood and appetite for risk is high.
In fact, one of the only years Train underperformed was in 2003 when commodity stocks (an area Train has never invested in) considerably outperformed the wider UK equity market.
The consistency of Train’s returns is best illustrated with his Finsbury Growth & Income trust, which has beaten the FTSE All Share in nine out of the last 10 calendar years.
Source: FE Analytics
Harrison has quickly become one of the best known managers in the UK Equity Income space, which is understandable given he has only underperformed against his peer group composite in 2003 and 2009 during the period in question.
He is now head of equities at Columbia Threadneedle and has managed their flagship £3.3bn UK Equity Income fund since February 2006, having previously run funds at TU and Premier.
Harrison, who has beaten his peers by close to 100 percentage points since January 2000, has a very active approach and takes a more contrarian strategy than many of his rivals.
According to the FE Research team, this is why his Threadneedle UK Equity Income fund has been a top decile performer in the IA UK Equity Income sector and comfortably beaten its benchmark since he took charge.
Performance of fund versus sector and index under Harrison
Source: FE Analytics
“The fund has outperformed most of its peers in seven out of the eight years since Harrison became manager,” the team said.
“He reduced the holdings in banks during 2006 which helped the fund do better in the crisis of 2007 and 2008. By buying companies when they are cheap the managers have managed to lose less money in the bad years and also do better in the rebound years of 2009 and 2013.”
They added: “Refusing to buy banks helped in 2013 when the sector suffered, as did not buying miners which many managers thought were cheap.”
The results of the study showed that four FE Alpha Managers have managed to outperform their respective peer group composites in 12 out of the last 15 years. They include Invesco Perpetual’s Mark Barnett, Edentree’s Robin Hepworth and McInroy & Wood’s Victor Wood.
They are joined by Richard Pease, who recently moved from Henderson to Crux Asset Management – taking his highly rated European Special Situations fund with him.
Pease, who has previously managed funds at Jupiter and New Star, launched his now £1.1bn fund in October 2009 over which time it has outperformed the IA Europe ex UK sector in four out of the last five calendar years, including in 2011 when the European sovereign debt crisis intensified.
It has been a top quartile performer in the sector since its launch, beating the MSCI Europe ex UK index by more than 30 percentage points with its gains of 81.18 per cent.
