Since French investment bank BNP Paribas first expressed concerns over market liquidity in August 2007, fund managers have had to negotiate a range of conditions from boom to bust and everything in between. 

The latest FE Trustnet study uses the Sharpe ratio to determine which funds represented the best investment over this period, not only on a total return basis but also with due consideration to the level of risk managers took on. 


UK equity

The UK equity fund with the best risk-adjusted return over the last five years is the £405m Liontrust Special Situations portfolio.

FE data shows that over the period it has a Sharpe ratio of 0.33. The ratio measures a fund’s return relative to a notional risk-free investment such as cash. The difference in returns is then divided by the investment's volatility. 

FE Alpha Managers Anthony Cross and Julian Fosh’s fund has returned 54.16 per cent since the start of the crisis while the FTSE All Share Index has made just 3.67 per cent. 

Performance of fund vs sector over 5 yrs



Source: FE Analytics

The success of the fund, which sits in the UK All Companies sector, challenges the consensus that income-paying strategies are the most resilient in a crisis.

Cross and Fosh’s portfolio has a minimum investment of £1,000 and a total expense ratio (TER) of 1.92 per cent. 

On a risk-adjusted basis, Trojan Income has also fared well, as have smaller companies-focused managers Giles Hargreave and John McClure.

Mark Slater’s dramatic outperformance during 2009 and 2010 saw MFM Slater Growth also make it into the top five. 


UK fixed interest

M&G’s Richard Woolnough comes out on top in the fixed interest space. His Strategic Corporate Bond and Optimal Income funds take the top spots for risk-adjusted returns, with respective Sharpe ratios of 1.27 and 1.08.

The £8bn M&G Optimal Income fund has been one of the most popular products in the IMA universe over the last 12 months, experiencing inflows of £2.5bn. Only Stan Life Inv GARS has seen more sales. 

Over the last five years M&G Strategic Corporate Bond has returned 66.58 per cent, marginally more than Optimal Income, which returned 57.47 per cent, but significantly higher than the 26.47 per cent and 27.98 per cent from the  respective Strategic and Corporate Bond sector averages.

Both have a minimum investment of £500. 

Woolnough believes that the latest stimulus measure by the Bank of England, which has pumped another £50bn into the system, is a sign that the crisis has several more years to run. 


Global equity

Across the developed markets outside of the UK – including North America, Japan and Europe – it is FE Alpha Manager Gordon Grender’s GAM North American Growth fund that has the best return for the level of risk it has taken on. 

The US is a difficult market in which to add value because it is so well researched. Each S&P 500 company has dozens of analysts pouring through accounts, making it incredibly difficult to gain a competitive edge. 

Grender’s fund has not only returned more than any other in the IMA North America sector – 45.07 per cent since the onset of the crisis – it has also been less volatile than the sector average over the period. 

Elsewhere the Neptune Japan Opportunities fund, headed up by FE Alpha Manager Chris Taylor, has posted sector-leading returns with below-average volatility by investing in a portfolio of predominantly large cap export-led Japanese equities. 

Alexander Darwall’s Jupiter European fund has the best Sharpe ratio of any of the funds in the Europe ex UK sector.


Emerging markets

Despite the consensus view that smaller companies funds are a highly volatile, risky and aggressive way to play the stock market, analysis of Sharpe ratios shows they tend to beat their all-cap peers in the risk/return stakes, particularly in emerging markets. 

The stand-out performer since the onset of the financial crisis has been Aberdeen Global Asian Smaller Companies, with a Sharpe ratio of 0.68.

The nearest all-cap rival, First State Asia Pacific Sustainability, has a score of 0.4. 

Aberdeen manages its funds with a conservative approach, focusing on downside protection over out-and-out capital growth. 

Performance of fund vs sector over 5-yrs



Source: FE Analytics

Not only has the fund returned more than any other emerging market fund over the last five years, it has also been the sixth-least volatile. 

Unlike the popular Aberdeen Emerging Markets, the portfolio is still open to new investors, with a minimum investment of $1,500.


Multi-asset

The £2.4bn CF Ruffer Total Return fund stands head and shoulders above the competition in the IMA’s four multi-asset sectors in the risk/return stakes. 

It has a Sharpe ratio of 0.74 over five years while its nearest rival, the Trojan fund, has a score of 0.53. 

One of the reasons for the fund’s success is that managers David Ballance and Steve Russell put an emphasis on capital preservation.

In 2008, while equity markets were in freefall, the fund made 20.88 per cent, more than any other multi-asset fund. 

Since the onset of the financial crisis in 2007, the fund has returned 57.61 per cent. The average fund in the Mixed Investment 20-60% Shares sector returned just 6.9 per cent over the period.

Performance of fund vs sector over 5-yrs



Source: FE Analytics

With 16 per cent of the fund’s assets invested in Japanese equities, the managers clearly believe that the world’s third-largest economy is on the verge of regaining a competitive edge exporting to other Asian economies. 

Ballance and Russell’s portfolio has a minimum investment of £1,000 and a total expense ratio (TER) of 1.54 per cent.