More than 42 managers made it into the 2017 FE Alpha Manager Hall of Fame this year with 10 new entrants, but only five of the full list have been held in the FE model portfolios since their inception in 2012. 
FE Research released the full list of FE Alpha Managers in the Hall of Fame on Monday with Fidelity’s Alex Wright, Troy’s Francis Brooke and Nick Train all added to the hall for the first time in 2017.
To qualify, FE Alpha ratings are judged according to managers’ track records since 2000, with extra weighting for those with the longest track records to highlight the benefits of experience.
The ratings are based on a combination of risk-adjusted alpha, consistency of outperformance versus their benchmark and outperformance in both up and down markets.
Of the group, over half of the managers - which represent around 2 per cent of the industry – have retained their seat for the third-year running including fixed income heavyweights Richard Woolnough and Ian Spreadbury as well as star UK equity income manager Neil Woodford, Crux Asset Management’s Richard Pease and Standard Life’s Harry Nimmo.
Below, FE Trustnet looks at the five FE Alpha Managers in the Hall of Fame that FE Research has backed since it launched its model portfolios in June 2012.
The £742m, five crown-rated Marlborough UK Micro Cap Growth is the first fund on the list of funds that have been in the FE Invest model portfolios since inception.
Charles Younes (pictured), research manager at FE, said: “It’s pretty much a no-brainer. It’s about his expertise in micro-cap and smaller companies.”
The fund, which has 269 holdings, is focused on the lower end of the market spectrum, with 90.6 per cent of the portfolio invested in funds with a market capitalisation of less that £1bn and 55.8 per cent in listings below £250m.
“We like the portfolio construction process which makes for an equally weighted portfolio with lots of positions so he is trying to play the average number instead of having just one or two being right,” Younes said.
“He has a big team of analysts covering this industry and typically when a small company wants to list they meet Giles who is very aware of before anyone else when a company is going to be listing so he clearly has an edge in terms of knowledge of these companies.
“He’s surrounded by a great team of analysts, especially on the tech space which especially now is very important for smaller and micro-cap companies.”
Performance of fund vs sector and benchmark since FE Invest portfolio launch
Source: FE Analytics
Since the launch of FE Invest’s model portfolios in 2012, the fund has returned 131.46 per cent and has a particularly strong record over the long term, returning 230.74 per cent over the last 10 years.
The fund has an OCF of 0.8 per cent.
Another mainstay is John Wood’s £1.8bn, five crown-rated JOHCM UK Opportunities fund, though the manager recently announced his decision to retire.
Younes said: “He is a very consistent manager and a consistent performer. It is sad to see him leaving but the transition has been well prepared. We have met his two deputy managers in the past so we don’t have any concerns over the future of the fund."
Current co-managers Rachel Reutter and Michael Ulrich are set to take over from Wood when Wood retires at the end of September.
The fund has been a top quartile fund in the IA UK All Companies sector over three and 10 years but has struggled over the last year.
“He is a cautious manager who is very careful about valuations and does not hesitate to hold cash or have a very concentrated portfolio with a lot of conviction in a few stock ideas,” the analyst said.
“For two or three years he has had a very high allocation to cash because he has seen valuations move all over the board and all UK equities look very expensive.”
While this is prudent, with the FTSE All Share rebounding in the wake of the Brexit vote (up 23.52 per cent over one year), the fund has struggled in the shorter term.
The £3.8bn Fidelity Moneybuilder Income run by Spreadbury and Sajiv Vaid has been a stalwart of the FE Research model portfolios’ fixed income allocation.
FE Invest’s Thomas McMahon said: “We like Spreadbury’s cautious approach to investing in bonds and the fact he has maintained a relatively high duration through the post-crisis recovery which has given us good diversification for our equity holdings.
“During periods when duration has outperformed his funds have done better than most active funds, and as this has generally been when equities have underperformed this has helped our portfolios do well on the downside."
The fund has beaten the average active fund in the IA Sterling Corporate Bond sector over the last decade but has struggled to beat its BofA ML Euro-Sterling benchmark.
Indeed, since the FE Invest model portfolios launched in 2012 the fund has returned 31.05 per cent, slightly below the sector average and 6.54 per cent behind the benchmark.
Performance of fund vs sector and benchmark since FE Invest portfolio launch
Source: FE Analytics
McMahon said: “As for underperformance we don’t really care about that; we are aiming to diversify active strategies, so what is important is the manager has a consistent approach we can blend with other funds with different exposures to increase the diversification benefit in the portfolios which improves risk-adjusted returns and ensures we aren’t too exposed to any one view of the markets.”
The fund currently yields 3.42 per cent and has a clean ongoing charges figure of 0.56 per cent.
Another mainstay of the fixed income allocation is Richard Woolnough, who runs the £3.6bn M&G Strategic Corporate Bond fund.
Much like the Fidelity Moneybuilder Income fund, since FE Invest launched the fund has struggled, sitting in the bottom quartile of the IA Sterling Corporate Bond sector.
However, looking more closely, against his peer group the manager is slightly ahead, as the below graph shows.
Performance of fund vs peer group since FE Invest portfolio launch
Source: FE Analytics
The fund is positioned to do well during times of volatility and during the last financial crisis in 2008, the fund was the best performer in the sector over the year.
“Woolnough has been positioned for a cyclical recovery for some time. While he was arguably too early on this change, it has allowed him to outperform when US assets or high yield assets have done well, which has allowed us to get pro-cyclical exposures into our portfolios,” McMahon said.
The fund has a yield of 3.11 per cent and an OCF of 0.66 per cent.
The final of the five funds FE Invest has always owned is Guy Morrell’s £333m HSBC Global Property, which has outperformed the IA Property sector over one, three and five year timeframes.
Looking more closely, the manager is also ahead of his peers during this timeframe and is also ahead since FE Invest launched in June 2012 (60.74 per cent versus the sector’s 49.41 per cent return).
FE portfolio manager Amandine Thierree said: “We like Guy Morrell’s approach to property investing, which is different from his peers. He focuses on the dynamics in the global real estate market and allocate to the most appealing regions without the constraint of a benchmark.
“He can also take advantage of different fund structures to implement his views, like ETFs for more efficient markets or bricks and mortar funds. This blend of active and passive management and direct property has allowed him to perform consistently with a relatively low level of volatility.”
Indeed, the fund’s top holdings are iShares US Property Yield Fund (8.96 per cent), iShares Asia Property Yield Fund (8.37 per cent) and Henderson UK Property PAIF (6.25 per cent).
The fund has a yield of 1.9 per cent and an OCF of 1.21 per cent.