Funds managed by Columbia Threadneedle, JP Morgan Asset Management and River & Mercantile are among those that have landed a top score when being awarded their first FE Crown rating.
While fund performance can be driven by manager skill and a careful, consistent process, it can also be the result of less desirable factors such as making significant bets on market movements, sudden bursts of performance among periods being indifferent or poor and taking very high risks.
The FE Crown Fund Ratings attempts 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.
The new rebalancing has just been carried out and some 95 funds that previously lacked a three-year track record have just received their first rating. Of these, 12 have been awarded the top rating of five FE Crowns – and they are shown in the below table (ranked alphabetically).
Source: FE
Three funds from the IA Targeted Absolute Return sector – which has found itself increasingly popular with investors over recent months on the back of fears of mounting uncertainty and volatility – appear on the list.
All three funds posted a higher total return than their average peer over the three years to the end of June 2016. As would be expected, this has come with greater annualised volatility than the typical absolute return fund but all have still given a much smoother ride than the FTSE All Share and MSCI AC World indices.
Performance of funds vs sector over 3yrs to 30 Jun 2016
Source: FE Analytics
JPM Global Macro Opportunities leading the trio after making a 32.24 per cent total return, which is only 2.59 percentage points behind the gain made by the MSCI AC World and double that made by the FTSE All Share.
The £519m fund, which is managed by James Elliot, Talib Sheikh and Shrenick Shah, is a multi-asset macro thematic fund that targets an annual return of 7 per cent over cash, before fees, with volatility of 6 to 10 per cent per annum over the medium term.
It focuses on opportunities created by global macroeconomic trends, arguing that these are the main drivers of asset class returns. At the moment, the portfolio’s largest weighting is to its ‘low inflation’ theme, followed by ‘Europe gradual growth recovery’, ‘US economic strength’ and ‘China in transition’.
The fund’s diversified nature – it makes use of traditional assets like long-only equity and fixed income as well as sophisticated ones such as relative value and dynamic hedging – and its focus on risk management means it has a strong track record in down markets. For example, it made a 4.82 per cent return between 10 April 2015 and 25 August 25, when global equities tanked 17.50 per cent.
Performance of fund vs index during 2015 sell-off
Source: FE Analytics
Old Mutual has three funds on the list. Two of them – Old Mutual Henderson China Opportunities and Old Mutual Newton UK Income – are mirrors of existing Henderson and Newton funds that are available through the Old Mutual Wealth Select platform.
Paul Craig’s Old Mutual Cirilium Moderate Passive was acquired by Old Mutual Global Investors when it bought Henderson's stake in Cirilium, its multi-manager joint venture with adviser network Intrinsic, in May 2014.
This £38.8m fund aims to be broadly diversified across asset classes (typically with a maximum of 75 per cent in equities) through passive vehicles. Its largest equity exposure is the US at 28.73 per cent, with another 15.75 per cent in UK stocks; it also has 27.83 per cent in bonds.
R&M World Recovery, which is headed up by Hugh Sergeant, also took five FE Crowns after making a 33.41 per cent total return over the three years to the end of June 2016. This puts it ahead of its average IA Global peer and just behind its MSCI AC World benchmark.
Performance of fund vs sector and index over 3yrs to 30 Jun 2016
Source: FE Analytics
The £167.4m fund has been more volatile and suffered a higher maximum drawdown than both the index and the sector owing to its value tilt but Square Mile says it could be a good option for long-term investors will to accept greater levels of risk.
“This fund is a little like a whisky drinker who prefers his tipple not only neat, but at full cask strength. Investors need either an iron constitution or to recognise that a little may go a long way,” the consultancy said.
“We have a high regard for Mr Sergeant who has been investing in recovery type stocks throughout his career and he has built an enviable performance record running UK portfolios in a similar fashion. However, this is a high risk, high return strategy that really needs to be considered over the long term.”
BlackRock has two funds jumping straight in with five FE Crowns (both managed by Michael Levy), while Barings, Investec and T. Rowe Price have one each.
