Nine fund management duos have been awarded the coveted status of FE Alpha Manager in the research team’s latest rebalancing.
While many of the names remain familiar, Ardevora’s Jeremy Lang and William Pattisson, who co-manage four funds for the firm including UK Income, UK Equity and Global Equity, are new to the list following their strong outperformance compared to their peers over the last year as well as over the longer term.
The status is awarded to managers by the FE Research team, who choose the top 10 per cent of UK retail-facing managers based on track records going back to the turn of the millennium.
This 10 per cent is chosen through their outperformance in both rising and falling markets, their ability to create risk-adjusted alpha and whether they have consistently beaten their benchmarks.
In fact, the overall number of managers awarded FE Alpha Manager status this year has increased from 182 in 2015 to 189, despite a series of torrid headwinds in the market last year such as the plummeting oil and commodity prices and a global growth slowdown.
Because of these challenging market conditions it has been particularly tough for multi-asset and absolute return managers to earn their stripes, due to headwinds impacting all areas of the investment universe.
For instance, while bonds have been shunned by most investors for their increased volatility, their lower yields and their higher prices, many equities have also suffered at the hands of turbulent markets and have experienced issues regarding balance sheet weakness, profit warnings and dividend cuts as a result of low oil prices.
Performance of sectors over 1yr
Source: FE Analytics
As of the latest rebalancing, there are four FE Alpha Manager duos that operate within the multi-asset and absolute return space.
While some have fared better than others over last year’s tricky market conditions, they have all delivered stellar long-term performances and, for the patient investor, have managed to smooth out total returns and achieved a favourable outcome.
First up are Luke Newman and Ben Wallace, who have done particularly well at navigating 2015’s choppy markets in the absolute return space, providing a total return of 5.64 per cent over the last year and beating the FTSE All Share index by 15.33 percentage points.
Performance of fund vs sector and benchmark over 1yr
Source: FE Analytics
Their five crown-rated Henderson UK Absolute Return fund’s performance is also strong over the long term having outperformed the All Share by more than three times over the last three years while also boasting two-thirds less annualised volatility.
As with most absolute return funds, it is renowned for protecting capital particularly well during weak markets and thrived in 2011 and 2014, which the managers attribute to taking short positions in poor quality companies on a bottom-up basis as opposed to general macro concerns.
This is arguably why the fund delivered a particularly strong performance in 2015 – the fund currently holds short positions in several underperforming UK blue-chips including Shell, Prudential, Barclays and Rolls Royce.
Henderson UK Absolute Return has a clean ongoing charges figure (OCF) of 1.06 per cent.
Next up are David Ballance and Steve Russell, who have retained their FE Alpha Manager status through the performance of their CF Ruffer Absolute Return and Total Return funds.
Their most well-known fund, CF Ruffer Total Return, has delivered a loss over the last year of 5.74 per cent. While this is a 170 basis point underperformance of its peer average in the IA Mixed Investment 20%-60% Shares sector, it has halved the loss of its FTSE All Share benchmark and has done so with almost half of the annualised volatility.
Performance of fund vs sector and benchmark over 1yr
Source: FE Analytics
Over the last decade, however, the fund comes into its own for its performance, having more than doubled its sector average with a total return of 75.66 per cent while maintaining a top-quartile annualised volatility.
Balance and Russell aim not to lose money over a 12-month period and to return more than cash, which is admittedly something they have struggled to do recently.
However, the team has succeeded in protecting capital over longer time frames and has achieved a top-quartile annualised volatility over three, five, seven and 10 years.
“The fund performance relies on the managers’ capacity to identify assets that will be behave according to their market expectations; since 2008 this task has gradually been getting more difficult as investments have started behaving similarly,” the FE Research team explained.
The fund, which is able to invest globally and is £2.8bn in size, has a clean OCF of 1.23 per cent.
The third FE Alpha Manager duo in the absolute return and multi-asset space is Paul Marriage and John Warren, who co-run the Schroder Absolute UK Dynamic fund within the IA Targeted Absolute Return space.
Not only have the managers provided almost half of the annualised volatility of the FTSE All Share index over the last year, their fund has also provided a total return of 9.77 per cent compared to the index’s loss of 9.69 per cent.
Performance of fund vs index over 1yr
Source: FE Analytics
The £235m fund has also managed to significantly outperform the index over one, three and five years.
The managers aim to provide a positive return over three years in all market conditions, and they do this through a minimum of 80 per cent long or short exposure to UK companies.
They adopt a bottom-up stock-picking approach and have a bias towards small and medium-sized firms which may have been a contributing factor to the fund’s recent outperformance on the long side.
Schroder Absolute UK Dynamic has a clean OCF of 1.17 per cent.
Last but not least, John Chatfeild-Roberts and Algy Smith-Maxwell, who co-manage the Jupiter Merlin fund-of-funds range, have retained their positions on the FE Alpha Manager list. In fact, they are FE Alpha Manager ‘hall of famers’ as they have never lost their ratings since they were introduced in 2009.
The managers co-run a number of multi-asset funds including the Balanced, Conservative, Growth, Income and Worldwide portfolios.
Over the last year, Chatfeild-Roberts has delivered an average total loss of 3.61 per cent and Smith-Maxwell has provided a loss of 2.05 per cent, compared to their respective peer group composite losses of 3.99 and 3.96 per cent respectively.
In last year’s tricky market conditions, the fund within their portfolio that stood out above its peers was Jupiter Merlin Balanced, which lost 2.68 per cent and outperformed its average peer in the IA Mixed Investment 40%-85% Shares sector by 171 basis points.
Their performance is stronger over the long term though, with both managers more than doubling their peer group composites’ average returns since the turn of the millennium.
Source: FE Analytics
The duo had worked together for 15 years at Lazard and Henderson before joining the team at Jupiter, where they have now been for more than 15 years.
Their Jupiter Merlin Balanced and Jupiter Merlin Growth funds have the highest FE rating out of their portfolios, having both been awarded a four-crown rating and won places on the FE Invest list for the managers’ investment processes and the funds’ resultant performances.
Their primary aim is to seek out an economic trend that is still under-estimated by the market – this is followed by an analysis of regions and sectors they expect to perform well over three years, then they choose funds with a similar outlook run by high-quality managers.
The £1.6bn fund has a clean OCF of 1.66 per cent and yields 2.4 per cent.
