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More losers than winners in the latest FE Crown rebalancing

23 July 2018

Following the latest FE Crown rebalancing, FE Trustnet highlights the funds that have seen the biggest jumps and falls in their ratings.

By Maitane Sardon,

Reporter, FE Trustnet

The latest FE Crown rebalancing has left more losers than winners as 11 funds fell from the highest ratings to the lowest while only five portfolios jumped from one FE Crown to four or five.

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.

Used as a way of screening for the best performing funds among a thousand of investment instruments in the Investment Association and Association of Investment Companies universes, the FE Crown bi-annual rebalance takes into account three measurements.

FE looks at alpha, volatility and consistently strong performance with the top 10 per cent of funds awarded five FE Crowns, the next 15 per cent receiving four crowns and each of the remaining three quartiles given three, two and one FE Crown(s).

Rob Gleeson, head of research at FE, said: “Markets have continued to be difficult for managers to predict in the six months since our last rebalance. The year started strongly, but this enthusiasm didn’t last and there was a sharp sell-off at the start of February. Fears of monetary tightening escalated into a short-lived global market sell-off. Escalation of the US-led trade war has remained the main concern for markets.

“From a sector perspective, the latest rebalance shows a similar story to January’s FE Fund Crown rebalance. Managers are generally finding fertile ground in more specialist, less researched industries which is where active management is widely believed to pay dividends.”

While just five funds were upgraded from the lowest rating to four or five crowns, 11 portfolios have made the reverse move. TwentyFour Dynamic Bond, Candriam Bonds Credit Opportunities and Schroder US Mid Cap are the biggest funds falling to the lowest rating.

Top-rated funds with the biggest downgrades


Source: FE

TwentyFour Dynamic Bond is the only fund that has seen its crown rating drop from five to one. The £1.8bn fund sits in the IA Sterling Strategic Bond sector and is run by a team of five including Eoin Walsh, Gary Kirk and Mark Holman, who have overseen the strategy since launch in 2010.

It is in the sector’s second quartile over the three years to the end of June with an 11.28 per cent return, although it is in its third quartile for alpha generation and annualised volatility.

TwentyFour Dynamic Bond’s biggest country exposure is to Europe (32.85 per cent) and the UK (26.55 per cent). It holds 26.40 per cent in government bonds.

A big fund to have seen a downgrade from four to one crowns is FE Alpha Manager Jenny Jones’ Schroder US Mid Cap fund, which has assets under management of £2.1bn.

The fund, which aims to provide capital growth and income by investing in equities of medium-sized US companies, was one of the long-term outperformers experiencing a shaky start to 2018, research from FE Trustnet recently showed. It also went through a poor 2017.

With a 57.4 per cent total return over the last three years, the fund is behind the IA North America sector and Russell 2500 benchmark’s respective gains of 58 per cent and 63.2 per cent.

The other decent-sized fund to see a big decrease in its FE Crown rating is the €1.9bn Candriam Bonds Credit Opportunities Classique fund. Overseen by Philippe Noyard, it invests principally in bonds or in derivative instruments issued by companies with a rating exceeding B-/B3.

FE Trustnet research showed Candriam Bonds Credit Opportunities Classique was one of the funds that have beaten their benchmarks in both rising and falling markets during the past five years. However, the fund is down 0.96 per cent so far this year.

Other funds seeing a downgrade to one crown include M&G Episode Growth, Architas MA Active Intermediate Income, Allianz Global Fundamental Strategy, Quilter Investors US Equity Small/Mid-Cap, M&G Episode Growth, Barclays Global Access Pacific Rim (ex-Japan) and TM Cavendish UK Balanced Income.

One crown-rated funds with the biggest upgrades


Source: FE

However, not all funds have lost out in the rebalance and some have moved from a poor crown rating to a strong one. SVS Church House Deep Value Investments and Investec Monthly High Income are the latest rebalancing’s winners, going from one crown to five.

As its name suggests, SVS Church House Deep Value Investments is built around a concentrated portfolio of stock showing ‘deep value characteristics’. Although value has struggled as a style, the fund is up 33.68 per cent over the past three years.

Investec Monthly High Income, meanwhile, is currently the eighth strongest performer in the IA Sterling High Yield Bond sector after making 15.30 per cent, compared with a 12.63 per cent gain for the average fund in the IA Sterling High Yield sector and a gain of 15.54 per cent for the ML Global High Yield Constrained Hedge index.

Performance of fund vs sector and benchmark over 3yrs


Source: FE Analytics

Architas MA Active Reserve, overseen by Jaime Arguello and Nathan Sweeney, has also been upgraded – as well as being a current member of the FE Invest Approved List. It has moved from one crown to four.

The £86.7m fund, that sits in the IA Unclassified sector, aims to provide capital appreciation over the long term within a risk controlled framework and targeting an annualised volatility of below 8.3 per cent over the long term.

It does so through investment in a mix of funds, including fixed interest, property and money market portfolios, with top holdings including HSBC Global Liquidity Sterling, Blackrock Inst Cash Series Sterling Liquidity or Invesco Perpetual Corporate Bond among others.

Since launch in May 2007, Architas MA Active Reserve has delivered a 44.21 per cent total return.

Two funds from the IA UK Index Linked Gilts sector went from having just one FE Crown to four: Janus Henderson Index-Linked Bond and F&C Institutional Active Index Linked.

The £178.60m Janus Henderson Index-Linked Bond fund is overseen Andrew Mulliner and Bethany Payne, who took over in April.

It has been second quartile over three years, up 27.79 per cent compared with a gain of 27.62 per cent for the average fund in the IA UK Index Linked sector and a 30.89 per cent gain for the FTSE Index Linked Gilts Over 5 Years benchmark.


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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.