The likes of GAM Star Cautious, Hermes Asia ex Japan Equity and CF Miton UK Smaller Companies are among the funds to be awarded five FE Crowns in the latest rebalancing of the ratings system.
FE’s Crown ratings evaluate funds according to alpha generation, volatility and the consistency with which they have beaten their benchmarks over the past three-year period. They have just been rebalanced and the most recent period covers a range of differing market conditions.
Over the past three years we have seen a strong bull market in 2013 for most assets followed by several significant sell-offs for major equity markets in the latter two years – choppy, volatile waters in which to invest. Nonetheless, this is the period over which funds have been scored with between one and five FE Crowns.
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.
In this article we take a look at five of the most interesting to have scored in the top rating as they have a long enough track record to be included.
GAM Star Cautious
First up, Charles Hepworth and James McDaid run this £128m fund of funds portfolio which launched in October 2012. Hepworth and McDaid run a range of multi-asset funds at GAM.
Since launch GAM Star Cautious has returned 15.28 per cent, beating the average return in the IA Mixed Investment 20-60% Share sector and, as the graph below shows, it has done so fairly consistently over this period.
Performance of fund and sector since launch
Source: FE Analytics
It aims to preserve capital while achieving “a moderate participation” in equity market growth. FE Research’s Charles Younes (pictured) says the fund has done very well in terms of alpha generation and has also delivered nicely consistent returns over the period in question.
FE Analytics shows the fund’s annualised volatility since launch has been 6.35 per cent, compared with almost 11 per cent for UK equities. It also holds an FE Risk Score of 45, which means it is deemed to have been less than half as risky as the FTSE 100 in recent years.
Top holdings include GAM Star Total Return, GAM Star Credit Opportunities, CC Japan Alpha and Ardevora UK Income. Fitting its cautious approach, 30.3 per cent of the portfolio is in fixed income with another 15.8 per cent in absolute return funds.
The fund has clean ongoing charges figure (OCF) of 1.64 per cent.
The past three years or so have not been a great time to have held funds investing in the Asia Pacific ex Japan space, with the index and sector average only marginally up after investor sentiment turned against emerging market assets.
The period also covers the time since Jonathan Pines launched the Hermes Asia ex Japan fund but this fund has hugely outperformed with a return of 50.11 per cent. It also made a 4.24 per cent return last year, when its average peer was down some 3.35 per cent.
Performance of fund and sector since launch
Source: FE Analytics
Pines’ value style has clearly worked well at growing investors’ cash with the fund in the number one spot in its sector since launch for total return and alpha generation while sitting in the second quartile for volatility.
Hermes Asia ex Japan Equity has achieved these strong returns despite its overweight to the troubled Chinese equity market – it counts the like of Baidu and Beijing Capital International Airport as top 10 holdings. It is also overweight Korea but underweight Taiwan, Hong Kong and India.
Pines is not reticent of holding a volatility portfolio, believing risk to be the permanent loss of capital rather than just turbulence in its short-term valuation, and is one of the more volatile members of the peer group. However, it leads the sector when it comes to risk-adjusted returns as measured by the Sharpe, Sortino and Treynor ratios.
The fund has a clean OCF of 0.86 per cent.
CF Miton UK Smaller Companies
Next up is Gervais Williams and Martin Turner’s £150m fund, which passed its three-year anniversary in December and now has five FE Crowns. Both managers are specialists in small-cap investing.
The fund invests in a concentrated mix of mid, small and micro-cap holdings with a bias to the latter. It has 71 per cent in AIM stocks and 15 per cent in the FTSE Small Cap index; showing its status as a genuine small-cap fund, there’s only 1.2 per cent in the FTSE 250.
Its top holding is gift firm International Greetings followed by financial services group STM Group and business solutions provider K3 Business Technology Group.
According to FE Analytics, the fund has returned 83.82 per cent since launch, beating its sector and the FTSE Small Cap ex IT index by a significant margin. It strives for long-term total returns and offers no element of capital preservation.
Performance of fund and sector since launch
Source: FE Analytics
Younes points that it has done well in terms of consistency of returns and also in terms of alpha generation. FE Analytics shows it has posted the highest maximum gain of its sector since launch – at 68.92 per cent – but has shown the second highest annualised volatility.
The fund has a clean OCF of 0.88 per cent.
Old Mutual Global Equity Absolute Return
This $4.6bn portfolio is co-managed by Ian Heslop, Amadeo Alentorn and Mike Servent and unlike the other funds mentioned in this article has a track record substantially longer than three years having launched in 2009.
Over the past three years it has performed strongly compared with the MSCI World index and delivered substantially lower volatility – standing at 4.97 per cent since launch, against the index’s 11.94 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Largely it is run on a quant-driven process and is market neutral in terms of not being focused toward a particular direction for markets. It aims to deliver absolute returns over rolling 12-month periods – which it has had a high level of success in doing so over recent years.
Old Mutual Global Equity Absolute Return also looks to have a low correlation with equity and bond markets, which our data suggests it has achieved. Its correlation to the MSCI World is just 0.11 while to the Barclays Sterling Gilts index it’s 0.25.
This has worked well at protection against the downside with its maximum drawdown – which is the most an investor would have lost if they bought at the top and sold at the bottom – standing at just 3.83 per cent whereas for the FTSE All Share this was 12.66 per cent.
Old Mutual Global Equity Absolute Return has a 0.98 per cent clean OCF. The fund charges a performance fee of 20 per cent of outperformance of its hurdle rate subject to high watermark
Last up we have this $5.8bn fund, which while one of the larger in the Investment Association universe, is relatively unknown to many UK retail investors. It is managed by Pimco group chief investment officer Daniel Ivascyn and portfolio manager Alfred Murata.
Investing in a range of fixed income markets, the fund is somewhat of a best-ideas fund for Pimco, which is one of the largest US specialist in fixed income. Its primary aim is to maximum income, while it also aims to have a relatively low risk profile and achieve some capital appreciation.
Since its launch in the UK it has returned 22.33 per cent beating its index as well more than doubling the average return in the IA Sterling Strategic Bond sector. It has also tended to achieve its other aims, with Younes saying: “The volatility is also very, very low compared to its benchmark.”
The fund’s top 10 is a mixed of Treasury’s index-linked Treasuries as well as corporate credit.
It has 22 per cent of assets In government-related bonds with 25 per cent in investment grade, 31 per cent in high yield and 25 per cent in emerging markets; there’s also 9 per cent in mortgages, which are Murata’s area of specialisation.
Pimco GIS Income has a clean OCF of 0.8 per cent.
