Research found that, across a multitude of equity-focused IMA sectors, funds with the lowest FE Risk Score often have the best medium- and long-term record.
The trend is most notable in IMA UK Equity Income: Neil Woodford’s Invesco Perpetual Income, Invesco Perpetual Higher Income and SJP UK High Income funds are among the 10 vehicles with the lowest FE Risk Scores in the sector. With returns of 123.93, 122.27 and 97.62 per cent respectively, the funds are also the top-three best-performing vehicles over a 10-year period.
Over five years, Francis Brooke’s Trojan Income fund – which, with an FE Risk Score of 64, is the least risky UK Equity Income fund – is the second-best performing vehicle of its kind over five years, with returns of 33.48 per cent. It is also a top-five performer over a three-year period.
Newly launched FE Risk Scores calculate risk relative to the FTSE 100 index, and are more responsive to recent rather than long-term trends. The FTSE 100 has a fixed FE Risk Score of 100 and the volatility of other markets, funds and instruments are scored against it.
Performance of funds vs sector over 10-yrs
Source: FE Analytics
With an FE Risk Score of just 60, Mark Slater’s MFM Bowland is the least risky UK All Companies fund. However, in a sector of more than 300 vehicles, it is also a top-10 performer over three- and 10-year periods.
In IMA Active Managed, CF Ruffer Equity General and Troy Spectrum are the stand-out performers. While the average fund in the sector has an FE Risk Score of 70, these vehicles have scores of 32 and 37 respectively.
CF Ruffer Equity General is the best-performing Active Managed fund over a 10-year period, with returns of 113.5 per cent – three times more than its sector average. It is also a top-five performer over three and five years.
Troy Spectrum, which was only launched in February 2008, is the best performing Active Managed fund over three years, with returns of 34.46 per cent.
It is a similar story in IMA Balanced Managed. As well as having the lowest FE Risk Scores, CF Miton Special Situations Portfolio and Strategic Portfolio are among the top-five best-performing funds of the last decade, with returns of 154.96 and 93.45 per cent respectively. Both vehicles are also top-quartile performers over five years.
Performance of funds vs sector over 10-yrs
Source: FE Analytics
Both Miton funds are managed by Martin Gray, who had an excellent record during both the dot com crash and 2008 global financial crisis. Although the manager tends to underperform in bull markets, his steady investment approach has paid off in the long-term.
Sebastian Lyon’s low-risk £1.3bn Trojan fund is among the top-three performing Balanced Managed funds over one-, three-, five- and 10-year periods. It has an FE Risk Score of 27, while the average Balanced Managed fund has a score of 62.
This trend is not exclusive to UK equity-focused sectors. First State Asia Pacific, Aberdeen Asia Pacific and Aberdeen Global Asian Smaller Companies are among the least risky and best-performing funds of their kind over three, five and 10-year periods.
McInroy & Wood Global Emerging Markets has an FE Risk Score of just 65. The £33.9m fund is the best-performing vehicle in its sector over a three-year period with returns of 50.68 per cent.
Over in Europe, the low-risk FF&P European All Cap Equity and Threadneedle European Select are top-quartile performers over the medium- and long-term, while GAM North American Growth comes out on top in the risk-adjusted return standings in IMA North America.