Funds such as Murray International, Legg Mason IF Brandywine Global Income Optimiser and AXA Framlington UK Growth have witnessed some of the biggest jumps in their FE Crown rating in 2019’s first rebalance.
The FE Crown ratings are quantitative measures designed to help investors identify funds which have displayed superior performance in terms of stock picking, consistency and risk control over recent years.
The top 10 per cent of funds are awarded five FE Crowns, the next 15 per cent receive four crowns and each of the remaining three quartiles are given scores of three, two and one crown respectively. They are rebalanced twice a year: in January and July.
Source: FE
In the latest rebalance, five strategies have gone from having the lowest score of one to the top FE Crown rating of five. They are shown in the above table, ranked in order of their three-year total return to the end of 2018.
The only investment trust on the list is Murray International, which is managed by Aberdeen Standard Investments’ Bruce Stout and resides in the IT Global Equity Income sector.
The £1.5bn trust has lagged its average peer and the market for chunks of the post-crisis bull run as the manager’s cautious stance held back returns. However, this has paid off more recently as conditions soured and the trust is the sector’s best performer over one and three years.
In a recent update, Stout reiterated his pessimistic view of market conditions: “In a world of hideously distorted and disfigured economic relationships its extremely problematic to predict forward with any certainty. However, history clearly shows before each of the past five recessions over the previous three decades, the ‘gradient’ between short-term interest rates and 10-year bond yields in the US has always reached zero.
“As the US yield curve again approaches this flattening inflection point its hardly surprising that the world holds its breath. With recession comes credit defaults and profit shortfalls, so financial markets have very good reason to be worried.”
The largest fund on the above list is Pictet EUR Short Term High Yield, which has assets under management of £1.8bn and headed up by Alexander Baskov, Prashant Agarwal and Frederic Salmon.
As its name suggests, the fund invests in in short- and medium-term high yield bonds that are denominated in euros or typically hedged to this currency. The bonds owned by the fund tend to be less sensitive to changes in interest rates.
The £138.6m Legg Mason IF Brandywine Global Income Optimiser fund resides in the IA Sterling Strategic Bond sector and puts an emphasis on capital preservation; Aviva Investors UK Equity MoM 3 is run by Investec Asset Management’s Malcolm Charles and invests in UK equities; while Carmignac Portfolio Euro-Entrepreneurs focuses on European small-caps.
Source: FE
Another nine funds have been promoted from a one FE Crown rating to four. Although this isn’t the highest rating available, it still means they are among the top quarter of the industry according to the ratings system.
Templeton Asian Growth is the open-ended fund with highest total return, after making 46.63 per cent over the three years to the end of 2018. The £2.3bn fund is managed by Eric Mok and Sukumar Rajah; it sits in the IA Asia Pacific Excluding Japan sector.
The fund is in its peer group’s second quartile over the past three years but drops in its bottom quartile on a one-year view. It’s worth noting that the managers have a relatively short track record on the fund with Mok joining it in April 2017 and Rajah in February 2018.
Pacific Assets Trust, which is run by Stewart Investors, is another Asian equity portfolio that has been promoted in the FE Crown rebalance. It is the only investment trust on the above list and has made the largest total return out of nine.
Pimco has done well in the rebalance and has three products moving from one crown to four, as can be seen in the above table.
The best known of these three is the £1.5bn Pimco GIS Global Real Return fund, which is managed by Mihir Worah, Jeremie Banet and Michael Althof. It’s a member of the IA Global Bonds sector and is designed to offer consistent real returns, low volatility, portfolio diversification and a hedge against inflation.
Of course, not every fund was promoted in the latest rebalance. In all 40 funds went from having four or five FE Crowns to just one; 13 of these previously had five FE Crowns and can be seen in the below table.
Source: FE
The largest of these funds is BlackRock UK, with a portfolio of £456.7m. The fund offers exposure to some of the largest companies on the UK stock market; it has a more institutional approach, which involves avoiding undue risks.
Over the past three years, the fund has made a 12.80 per cent total return and sits in the second quartile of the IA UK All Companies sector.
However, FE Analytics shows that it has been in the peer group’s bottom quartile for its annualised volatility and maximum drawdown over the same period.
The next largest funds on the above list are Independent Investment Trust (£273m), T. Rowe Price European High Yield Bond (£264m) and L&G UK Special Situations Trust (£239.4m).