FE has developed a wide range of ratings to help investors hone in on the funds that have displayed strong risk-adjusted performance over recent years.
Funds that have shown superior performance in terms of stockpicking, consistency and risk control during the past three years have a high FE Crown rating while FE Alpha Manager status reflects similarly high standards on an individual manager level.
Meanwhile, the AFI panel is made up of some of the leading fund pickers in the industry and it chooses funds best suited to cautious, balanced and aggressive portfolios. The FE Invest Approved list also highlights the funds held in the highest regard by the FE Research team.
In this article, we look at four funds which each holds the maximum of five FE Crowns, is headed by an FE Alpha Manager, is a member of the FE Invest Approved list and, aside for one, is found in all three AFI portfolios.
Alex Savvides has managed this £333.2m fund since its inception in June 2008. Its process is based on the belief that the market is too focused on short-term performance, so the FE Alpha Manager looks for distressed businesses that are making headway in solving their problems.
Since launch the fund sits in the second decile with a 110.40 per cent total return. Its average IA UK All Companies peer has made just 59.67 per cent over this time, while its FTSE All Share benchmark has risen 53.47 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
Its largest holding is HSBC, followed by Royal Dutch Shell, AstraZeneca, BP and Barclays. However, the portfolio is not just a play on blue-chips; while 58.1 per cent is in the FTSE 100, 21.8 per cent of assets are held in mid-caps and 18.4 per cent is in the FTSE Small Cap index.
One notable feature of the fund is its large underweight to the consumer goods sector; it has just 5.5 per cent here while the benchmark has 16.40 per cent. In his latest update, Savvides said: “We have talked at length of our concern over stretched valuations in the ‘bond proxy’ consumer goods sector.”
“Following further inflows of capital into this sector, our valuation alarm bells are only ringing louder; we see no valuation margin of safety in these stocks and, as such, they should not be considered ‘defensive’. Consequently, we continue to hold a maximum underweight positon in consumer goods.”
JOHCM UK Dynamic has a clean ongoing charges figure (OCF) of 0.74 per cent, charges a performance fee and yields 3.42 per cent.
Next up is this £359.9m fund, which applies techniques used in the private equity industry to value UK publicly traded companies. FE Alpha Manager Jamie Seaton especially looks at how a business’ growing cash flow can increase the value of its assets relative to its debt.
This approach has led to Aberdeen Asset Management being the top holding in his concentrated portfolio of 23 stocks. It’s followed by Jupiter, Numis, Shire and Tyman.
Since Seaton has managed the portfolio (he took over in April 2009), it has made a 244.62 per cent total return. This ranks it 14th out of the IA UK All Companies sector’s 237 members and is double the gain of its FTSE All Share benchmark.
Performance of fund vs sector and index under Seaton
Source: FE Analytics
FE Research highlights the fund for its “unusual approach” and says it could suit investors who are looking for aggressive capital growth but are willing to hold it for at least five years. The team also says the fund’s research committee, which is made up of independent industry experts from a diverse range of sectors, adds another differentiating feature to the fund.
GVQ UK Focus has a 0.97 per cent clean OCF and yields 2.41 per cent.
Headed by FE Alpha Manager Chris Reid since launch in December 2011 with Yuri Khodjamirian joining as co-manager in 2013, this £1bn fund has made a first decile 99.59 per cent total return since inception.
Performance of fund vs sector and index since launch
Source: FE Analytics
The consistency of outperformance is also noteworthy, with the fund posting top quartile returns in 2012, 2013 and 2014 – indeed, it was the sector’s best performing fund last year. Over 2015 so far, it’s up a second quartile 6.84 per cent.
Reid builds a high-conviction portfolio, preferring dividend-paying companies that are currently unloved by the market but have a catalyst for positive change. Its top holdings include Aviva, Man Group, Pearson, Rio Tinto and Legal & General.
FE Research highlights its “impressive track record” and notes that much of this outperformance has been driven by Reid’s stock picking. This has also helped to protect it against heavy losses.
Returns aside, Majedie UK Income scores well on other metrics since launch and sits in the IA UK Equity Income sector’s top decile when it comes to alpha generation, maximum drawdown, maximum gain and risk-adjusted returns as indicated by the Sharpe ratio. It is second quartile for annualised volatility, though.
However, Majedie recently moved to limit inflows into the fund after total assets in the strategy passed the £1.5bn mark. The fund has a clean OCF of 0.78 per cent and yields 4.38 per cent.
Invesco Perpetual UK Strategic Income
Last up is this £1bn fund, which has been managed by Mark Barnett since January 2006. It’s the only fund in the article that does not appear in all three AFI portfolios, featuring just in the balanced one.
The FE Research team describes the performance of the fund over Barnett’s tenure as being “excellent”, pointing out, noting that much of his success has come from unpopular calls on the future of industries such as healthcare and tobacco while avoiding banks.
Our data shows that over the FE Alpha Manager’s tenure it has significantly outperformed the IA UK All Companies and FTSE All Share with a top-decile 139.12 per cent total return. It’s also well ahead of the average fund in the IA UK Equity Income sector, where it used to reside.
Performance of fund vs sector and index under Barnett
Source: FE Analytics
Barnett also runs the Invesco Perpetual High Income and Invesco Perpetual Income funds following the departure of Neil Woodford, but the fact that this portfolio is much smaller allows the manager to be more flexible when it comes to holding small and mid-cap companies.
That said, its top holdings are made up of dividend-paying stalwarts such as Reynolds American, British American Tobacco, Imperial Tobacco, BT and AstraZeneca and the fund retains a decent weighting to this part of the market.
Invesco Perpetual UK Strategic Income has a clean OCF of 0.92 per cent and yields 3.27 per cent.
