The criteria which make up the Crown Ratings are particularly appropriate for times such as these as they look at how consistent any fund's performance is, how risky the fund is and how good the fund manager is at picking winning stocks.
Highlights
JOHCM UK Opportunities
Newly rated at the latest rebalancing is the JOHCM UK Opportunities fund. This fund has just passed the required three year history mark and has been awarded a '3 Crown Rating'.
Source: Financial Express Analytics
The above chart shows how the fund has performed in the last three years. Though it has suffered losses in recent months, a positive three-year performance figure has been achieved and all falls have been significantly less severe than those of the sector as a whole. In fact, over a three-year period JOHCM UK Opportunities is the top performing fund in the IMA UK All Companies sector.
Of most importance to investors at the moment should be the level of risk that they are exposed to. Those choosing to invest in a fund in this sector would do well to consider the volatility levels of the JOHCM UK Opportunities fund. This fund has an annualised volatility of 14.3 compared with the sector average of 16.35; this places the fund as 8th least volatile fund in a sector of 289 funds.
| "The recent changes in Crown Ratings represent an opportunity to discover just how well fund managers are coping with the current market conditions" |
A look at the composition of the portfolio suggests that the fund managers have successfully steered their fund away from some of the worst fairing sectors of the market. For example, while the average holding in Financials for the IMA UK All Companies sector is 21 per cent, the JOHCM offering is holding just 8.5 per cent.
Similarly, the fund is significantly underweight in Oil and Gas and overweight in Cash, Industrials and Consumer Products.
Careful analysis of sectors and stocks has meant that this fund has not suffered the losses of the majority of its peers. Such talented stock-picking means that the fund is also well placed to succeed when the market conditions start to improve.
Margetts Greystone Fixed Interest
A second fund to make its Crown Rating debut with the maximum '3 Crowns' is the Margetts Greystone Fixed Interest fund.
The performance chart shows that this fund has performed much better than its peers over the last three years.
Source: Financial Express Analytics
Operating in the 'Fund of Funds' style, this fund is able to take advantage of the skills of a wide range of fund managers. The alpha rating of 1.64 shows that the managers within the portfolio are adept at selecting their holdings.
However, the consistency of performance and low volatility displayed by this fund are real reasons that a '3 Crown Rating' has been awarded and why it represents a good choice for the current climate.
As the least risky fund in the IMA Sterling Corporate Bond sector this fund has managed to withstand much of what the market has had to throw at it. Whilst the sector average plummeted this fund has seen near flat performance over both a one and three year period.
In more encouraging times such performance levels would not be hailed as impressive but, as we keep hearing, these are extraordinary times – and in such circumstances a fund with very low levels of volatility and some positive growth should be viewed as a success.
New Star Extra High Yield Bond
So we turn our attention to some of the less encouraging stories to come out of the recent rebalancing of Crown Ratings.
While the Gilt sectors have done well of late, the corporate bond sectors have mirrored some of the losses of the equity sectors. The worst performing bond sector is the risky IMA Sterling High Yield sector. Funds in this sector are mandated to invest more than 50 per cent of their portfolio in fixed interest securities rated 'BBB' minus or below. With the current emphasis on highly rated stocks and bonds it is unsurprising that a sector focused on the lower rated bonds would perform badly.
Financial Express’s Crown Ratings methodology rates funds against other funds in the same sector so even within a poorly performing sector such as the IMA Sterling High Yield sector there will be some '3 Crown Rated' funds.
New Star’s Extra High Yield Bond, however, has the misfortune of being awarded just one crown. This fund has underperformed the sector by about 15 per cent in the last three years and has suffered particularly harshly in the last twelve months.
Source: Financial Express Analytics
Of particular note, alongside this poor performance, is the dismal alpha rating that the fund manager has achieved. The fund has an alpha rating of -3.75 which is the worst in the sector; this is combined with a beta of 1.34. Negative Alpha in conjunction with a Beta of over 1 is an indication of poor performance: managers are subjecting funds to volatility that is higher than the benchmark, while achieving returns that are lower than the benchmark attained.
Conclusions
The recent changes in Crown Ratings represent an opportunity to discover just how well fund managers are coping with the current market conditions. In comparing funds with their peers we are able to highlight which funds have been able to restrict volatility and make good stock choices, whilst minimising losses.
For most sectors 2008 was not a year in which many fund managers achieved positive returns but the mark of a good fund manager should be how well they steer their fund through difficult periods. Therefore, a fund that has been awarded '3 Crowns' at such a time should be well placed to further build on its successes when the market turns.