MFM Slater Recovery, Marlborough European Multi-Cap and NB Short Duration High Yield Bond are some of the funds that have witnessed the biggest promotion in the FE Crown rankings after FE’s analysts completed their latest rebalancing of the ratings system.
In total, six funds have seen their FE Crown rating move from one – the lowest rating in the system – to five. Another eight funds have gone from holding two FE Crowns to five in the rebalancing, which went live today.
The FE Crown ratings are quantitative ratings and aim to identify the funds that have displayed superior performance in terms of stock-picking, consistency and risk control over the past three years.
They are rebalanced in January and August, with the top 10 per cent of funds awarded five crowns, the next 15 per cent four crowns and each of the remaining three quartiles given three, two and one crowns.
The current rebalancing has seen a number of changes to the rankings, thanks to the last six months of 2012 dropping out of the assessment period and the volatile final half of 2015 being included.
In the following article, we take a closer look at the funds that have seen the biggest promotions in the new ratings as well as revealing those that have slipped down the table.
Funds jumping from one to five crowns
FE Alpha Manager Mark Slater has been running the £34.4m MFM Slater Recovery fund since its launch in March 2003, over which time it has made a second-quartile 257.50 per cent return against an IA UK All Companies average of 206.35 per cent.
However, the fund jumps into the peer group’s top decile over three years with a 59.53 per cent total return. As well as returning around three times more than its average peer, the fund has outperformed the FTSE All Share by a wide margin (although this is not the portfolio’s benchmark).
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
MFM Slater Recovery has performed especially strongly over the past two years, at a time when UK equities have had somewhat of a rough ride. The fund made 17.93 per cent in 2014 when the FSTE All Share’s total return was just 1.18 per cent – making it the best performer in the sector – and was up 14.47 per cent less year when the index gained 0.98 per cent.
Slater has dodged the worst of the index’s troubles thanks to its focus on small and micro-caps, which have fared better than the UK’s largest companies over recent years. Yet despite this bias, the portfolio scores very well on risk metrics and is in the sector’s top quartile when it comes to annualised volatility, maximum drawdown and Sharpe ratio.
MFM Slater Recovery has a clean ongoing charges figure (OCF) of 0.82 per cent. Slater also manages the MFM Slater Growth and MFM Slater Income funds, which both hold five FE Crowns.
David Walton’s £12.7m Marlborough European Multi-Cap fund has also moved from a one FE Crown rating to the maximum of five. Over the past three years, it has made a 40.778 per cent total return, putting it in the first decile of the IA Europe ex UK sector – where the average gain has been 23.44 per cent.
Like MFM Slater Recovery, this is another that has benefitted from a bias towards small and micro-caps. Style Research shows the portfolio has 51 per cent of assets in micro-caps and 37 per cent in small-caps.
This has aided performance more recently. Although the fund turned in fourth quartile gains in 2013 (but it still made 19.27 per cent) and was in the third quartile in 2014 after making a 2.56 per cent loss, it surged last year with a 27.96 per cent return making it the sector’s second best performer.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Its focus on riskier areas of the market means that it has one of the peer group’s highest maximum drawdowns over the past three years, although it is one of the best for annualised volatility. It is also top decile for risk-adjusted returns indicated by the Sharpe, Sortino and Treynor ratios.
Marlborough European Multi-Cap has a 1.05 per cent OCF.
One more fund going from one to five FE Crowns is NB Short Duration High Yield Bond, which is managed by Ann Benjamin, Thomas O'Reilly, Russ Covode and Dan Doyle.
As its name suggests, the £791m portfolio has the bulk of its assets in bonds rated at BB or B and just under half of the fund’s holdings have a duration of between one and three years.
Short duration high yield strategies have proved popular over recent years, as they are seen a way of maintaining yield while limiting overall interest rate exposure – something seen as attractive given the Federal Reserve’s interest rate-raising plans.
Although the fund is lagging its average peer over three years with a gain of just 1.91 per cent, FE Analytics shows it is in the IA Sterling High Yield sector’s second quartile for annualised volatility, downside risk and maximum drawdown.
NB Short Duration High Yield Bond has a 0.75 per cent OCF but is only available on a limited number of platforms.
Lindsell Train Japanese Equity, M&G Episode Macro and CF Purisima PCG have also seen their rating move from one crown to five in the rebalancing after a turnaround in their fortunes.
Funds moving from two to five crowns
The below table shows the eight funds that now have a five FE Crown rating, having previously been among the 25 per cent with two crowns. It also shows their total return over the past three years.
Source: FE Analytics
One that might stand out to UK investors is the £1.6bn JOHCM UK Opportunities fund, which has FE Alpha Manager John Wood as it lead manager with Rachel Reutter and Michael Ulrich serving as deputies.
The fund has made 25.09 per cent over the past three years, putting it second quartile in the highly competitive IA UK All Companies sector and around double the 12.79 per cent gain in its FTSE All Share benchmark.
It’s also top quartile for maximum drawdown, maximum loss and annualised volatility and second quartile for risk-adjusted returns shown by the Sharpe, Sortino and Treynor ratios.
The fund has been a member of the FE Invest Approved list. The FE Research teams highlights the fact that the fund is managed in an absolute return manner and has only made a loss in a single calendar year since inception in 2005.
JOHCM UK Opportunities has a 0.81 per cent OCF and yields 2.79 per cent.
Funds dropping to one crown
Of course, the rebalancing doesn’t result in only promotions and a number of funds have been downgraded. In fact, 121 funds out of 326 have lost their five crown rating.
The below table shows the ones that have been hit by the biggest fall and have gone from holding five crowns to just one, along with their three-year returns.
Source: FE Analytics
Another 10 funds, including the likes of Pimco GIS Diversified Income, Man GLG Strategic Bond and JPM Africa Equity, have gone from a four crown to one crown rating.
