The likes of Adrian Frost and Adrian Gosden at Artemis, Newton’s Iain Stewart and Invesco Perpetual’s Martin Walker are among the 31 managers to have lost their FE Alpha Manager status during the latest rebalancing, while Sebastian Lyon, Nigel Thomas and David Coombs are among those to have re-joined the list this time around. 
FE rebalances its list of Alpha Managers once a year in order to highlight the top 10 per cent of UK retail-facing managers on their track records going back to 2000, with extra weighting for managers with the longest track records to highlight the benefits of experience.
In order to calculate the list (which currently stands at 189 individuals, up from 182 this time last year) the FE Research team looks at a manager’s ability to create risk-adjusted alpha, outperformance in both rising and falling markets, and those who consistently beat their benchmarks.
Earlier this morning, FE Trustnet looked at the managers who have won FE Alpha status for the first time. However, there have been a number of high profile names who have either re-joined the list following a hiatus or have been stricken off this time around.
Starting on the more positive note, there are seven individuals who have regained their FE Alpha Manager status in 2016.
One of best known is Nigel Thomas, who heads up the £3.9bn AXA Framlington UK Select Opportunities fund.
He was removed from the list last year, but following a decent year for his fund in 2015, he is back in favour with the FE Research team.
According to FE Analytics, AXA Framlington UK Select Opportunities nearly doubled the IA UK All Companies sector average and beat its FTSE All Share benchmark by more than eight times last year thanks to Thomas’ focus on growth-orientated companies and bias towards mid-caps – a strategy which suited the conditions well.
Of course, though, the rating is weighted towards managers with strong long-term track records and that is certainly something Thomas has.
He took charge of the AXA fund in September 2002 over which time it has been a top decile performer (in terms of total returns) in the highly competitive sector with gains of 301.58 per cent, meaning it has beaten the index by more than 144 percentage points.
Performance of fund versus sector and index under Thomas
Source: FE Analytics
The fund has beaten its benchmark in seven of the last 10 calendar years and is among the sector’s top decile for alpha generation relative to its benchmark and risk-adjusted returns, as measured by its Sharpe ratio, since Thomas has been at the helm.
AXA IM has been very open about the succession plan for its flagship UK equity fund, noting that Thomas – who has some 40 years of experience in the industry – will be stepping back at some stage.
However, fans of the fund and Thomas’ process will no doubt be glad to see that deputy manager Chris St John – who is in line to take over AXA Framlington UK Select Opportunities and currently heads up the group’s UK Mid Cap fund – was awarded FE Alpha Manager status for the first time this year as well.
Another notable manager to re-join the list this time around is Troy’s Sebastian Lyon, who has a strong following both among private investors and advisers due to his long-term risk-adjusted returns.
In truth, until recently, it had been a difficult few years for Lyon and his popular Troy Trojan fund as his highly defensive positioning hasn’t been conducive to the environment where risk-assets had generally rallied.
However, he is now back on the list after a few years’ break due to his performance over the past two or so years – a period where equity and bond market volatility has been rife.
According to FE Analytics, Trojan has been the IA Flexible Investment sector’s second best performer of the past 12 months with a small gain of 1.99 per cent. That compares to a 5.52 per cent loss from its average peer and a 9 per cent fall from the FTSE All Share.
Again, this has built on Lyon’s decent long-term returns. The manager is renowned for defending capital and, while this has meant he has struggled in the recent bull market, he has tended to generate his outperformance when everything else is losing money.
For example, Trojan topped its sector in 2011 with a return of 8.72 per cent when the European sovereign debt crisis caused its average peer to lose 8.73 per cent and in 2008 when the financial crisis wreaked havoc, the fund was top decile with a 1.11 per cent return.
Performance of fund versus sector and index since launch
Source: FE Analytics
As a result, Lyon’s now £2.6bn fund has been the best performer in its sector since launch in May 2001 and beaten the FTSE All Share by more than 100 percentage points. It has also had the lowest maximum drawdown in the sector of just 9.81 per cent since launch and the highest Sharpe ratio.
The other managers to have regained the sought-after rating include Rathbones’ David Coombs, Schroders’ Rosemary Banyard and Glen Finegan – who was removed from the list following his departure from First State but is back thanks to his work on Henderson Emerging Markets Opportunities.
As we mentioned earlier, though, there have been some big names who are no longer FE Alpha Managers following the recent rebalancing.
In terms of assets under management, Iain Stewart – who runs the £9.1bn Newton Real Return fund – is the biggest causality of the shake-up.
Like Lyon, he has held very bearish views on the state of global markets and the economy over recent years which has led to his highly-defensive strategy.
Though Stewart has a good long-term track record (his fund has beaten both equities and gilts with a lower maximum drawdown since the strategy was launched in March 2004), a recent FE Trustnet article highlighted that second largest IA Targeted Absolute Return fund was one of the worst hit during the FTSE 100’s 20 per cent price fall.
Performance of fund versus indices under Stewart
Source: FE Analytics
The Artemis duo of Adrian Frost and Adrian Gosden have also lost their FE Alpha Manager status this year, following a period where the performance of their popular £6.9bn Income fund has fallen more in line with the IA UK Equity Income sector over recent years.
While Artemis Income, which is biased towards the mega-cap end of the market, has been ahead of the FTSE All Share in each of the past five calendar years, it has underperformed its sector in two of the last three calendar years meaning it is underperforming its peers over one, three and five-year periods.
The fund’s alpha generation, relative to its benchmark, has also fallen over the past 12 months.
A number of the other managers to have lost their ratings in the recent rebalancing are those who take a value approach to the market – an investment style which has severely underperformed quality and growth over recent years.
These include Nick Kirrage and Kevin Murphy at Schroders, who are ‘deep value’ investors and have therefore been highly exposed to bombed-out areas of the market such as banks and commodity-related stocks, which have borne the brunt of the recent volatility and falls.
This means their Schroder Income and Schroder Recovery funds were among the IA UK All Companies sector’s worst performers last year with hefty losses.
Performance of funds versus sector and index in 2015
Source: FE Analytics
The same can be said for Martin Walker, who manages the Invesco Perpetual UK Growth fund. The £1.1bn fund has been bottom quartile over the past 12 months as, again, Walker’s value-orientated strategy has meant he has had high weightings to oil stocks and financials.
Outside of those names, other managers to have lost their FE Alpha Manager status include Standard Life’s Will James, Fidelity’s Eugene Philalithis and M&G’s Steven Andrew.
