Chelverton Growth Trust, M&G Global Dividend and Newton Multi-Asset Diversified Return are among the funds to jump from one FE Crown to five in the latest rebalancing, while Artemis High Income, CF Odey Portfolio and Invesco Perpetual Monthly Income Plus are some of the portfolios to fall from the highest rating to the lowest.
The FE Crown Fund Ratings attempt to highlight the more valuable performance drivers by focusing on superior performance in terms of stock picking, consistency of outperformance against a credible benchmark and risk control over recent years.
When they are rebalanced twice a year, the top 10 per cent of funds are given five FE Crowns, the next best 15 per cent are awarded four crowns and the remaining three quartiles are given three, two and one crown respectively.
Looking across all funds in the Investment Association and Association of Investment Companies universes, just five have moved from a one crown to a five crown rating in this rebalancing.
One of those is the Chelverton Growth Investment Trust, which is co-managed by David Horner and David Taylor, and sits in the IT UK Smaller Companies sector.
Owing to a painful run of performance during the global financial crisis, the trust – which has a NAV of just £4.4m – is struggling relative to its peers over the past 10 years. However, its increased rating has come about due its returns over more recent time frames.
Indeed, FE data shows the trust is up a hefty 42.27 per cent so far this year while its average peer has lost 10 per cent. As such, and thanks to its market-beating returns in 2014 and 2015, it is the best performing member of its sector over one and five years.
Performance of trust versus sector over 5yrs
Source: FE Analytics
Chelverton Growth is highly differentiated to many of its peers as Taylor and Horner invest in AIM-listed stocks with market caps of up to £50m and the managers only back stocks they believe are at a point of change.
They will also invest in unquoted stocks where they believe there is a strong likelihood of the shares becoming listed, traded on AIM or the underlying company being sold.
While the underlying NAV of the trust has performed well so far this year, it is a narrowing discount that has really bolstered Chelverton Growth’s returns. It currently trades on a 14.6 per cent premium (reflecting the relatively illiquid nature of its shares), having traded on a 20 per cent discount this time last year.
The other investment trust to see the biggest increase in its FE Crown rating is City Merchants High Yield Trust. It is managed by Invesco Perpetual’s Paul Causer and Paul Read and is the best performing portfolio in the IT UK Equity and Bond Income sector over three years.
However, one of the manager’s open-ended funds has been one of the biggest losers from the rebalancing, which we will highlight later.
Turning to the Investment Association universe now and three funds have seen their crown ratings jump from one to five today.
The most high-profile of those is Stuart Rhodes’ £5.3bn M&G Global Dividend fund, though the lesser known (and more niche) F&C Institutional Active Index Linked fund has also made the list.
The last spot has been taken by Paul Flood’s £81.5m Newton Multi-Asset Diversified Return fund.
It sits in the IA Specialist sector and currently yields 3.12 per cent, with Flood investing across global equity, sovereign debt, corporate bond, infrastructure and property markets as well as having exposure to less mainstream asset classes like hedge funds and renewables. His approach centres on Newton’s thematic process.
FE data shows the fund has been a good core holding for investors over recent times, as it has delivered equity-like returns over three funds but with considerably lower volatility and a much smaller maximum drawdown.
Performance of fund versus index over 3yrs
Source: FE Analytics
While five portfolios have seen their ratings jump from one to five crowns in this rebalancing, some 14 have dropped from a five to one crown rating – with some high-profile names among the biggest losers list.
This include Paul Read and Paul Causer’s £3.6bn Invesco Perpetual Monthly Income Plus fund (which is also co-managed by Ciaran Mallon). Though it is one of the most popular members of the IA Sterling Strategic Bond sector, its high weighting to financial debt has hindered its relative performance so far this year.
As such, it is a bottom quartile performer over one year and third quartile over three years.
Nevertheless, the team at Square Mile still rates Invesco Perpetual Monthly Income Plus highly for long-term income-focused investors.
“Given the managers' focus on value, the fund is likely to have a slightly more volatile return profile than similar funds, tending to outperform when corporate bond markets are rising, but underperform when they are struggling,” Square Mile said.
“The fund is likely to be suitable for investors who wish to access a relatively high income stream, with the potential for some possible capital upside, and who are prepared to hold the fund for medium to long periods (at least three years).”
It’s worth noting that the fund, which yields 5.3 per cent, is firmly top decile over 10 years and has beaten the sector in seven of the past 10 calendar years.
Artemis High Income, which is run along very similar lines to Invesco Perpetual Monthly Income Plus with its structural allocation to equities, is another to see its FE Crown rating fall from five to one. It too is bottom quartile over 12 months in the IA Sterling Strategic Bond sector.
Funds that have seen their FE Crown ratings fall from five to one
Source: FE Analytics
The table above shows all the funds that have seen their FE Crown ratings drop from five to one in this rebalancing, with other well-known portfolios like Kames UK Equity Absolute Return, M&G Episode Growth and CF Odey Portfolio featuring.
