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The sectors where the most funds got an FE Crown upgrade

21 January 2019

Following January’s FE Crown ratings rebalance, we find out which Investment Association sectors have undergone the most change.

By Gary Jackson,

Editor, FE Trustnet

IA Global Equity Income is the sector that has benefited from the biggest proportion of upgrades in the latest rebalance of the FE Crown ratings while IA Japanese Smaller Companies saw most of its members downgraded.

The FE Crown ratings have just been rebalanced and we have already looked at the individual funds that have undergone the biggest jumps and falls, in addition to those that received a top rating as soon as they were eligible.

The 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 the previous three years. They are rebalanced twice a year: in January and July.

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. However, these percentages are across the whole universe not individual sectors, meaning that more than 10 per cent of a peer group’s members could be awarded five crowns.

 

Source: FE Analytics

After comparing funds’ previous ratings with their updated ones, FE Trustnet worked out the degree of change that has been seen in each sector. The chart above shows the peer groups where the largest proportion of members now have a higher FE Crown than before the rebalance.

It is topped by IA Global Equity Income as more than half of its members were upgraded. In all, 23 of the 45 funds that were previously rated now have a higher FE Crown score; another two received their first crown rating.

However, it’s worth pointing out that despite this high level of upgrades on a relative basis, there is not a single fund in the peer group that holds the top rating of five FE Crowns.


Four do have the next rating down: Guinness Global Equity Income, Merian Global Equity Income (IRL)Schroder Global Equity Income and Veritas Global Equity Income are all four-crown rated, although this is the first time the Merian fund has been rated.

The other three are all upgrades. Veritas Global Equity Income has witnessed the biggest jump as it previously held just one crown.

The £603.5m fund is headed up by the FE Alpha Manager duo of Andrew Headley and Charles Richardson, although Richardson will step back from portfolio management activities next year to concentrate on his role as chairman of Veritas Asset Management.

Veritas Global Equity Income aims for a high and growing level of income as well as capital preservation in real terms over the long term; to do this, the concentrated portfolio tends to focus on large-caps with durable competitive advantages, reliable revenues and attractive valuations. Top holdings include Pfizer, Philip Morris and BP.

Performance of fund vs sector over 3yrs

 

Source: FE Analytics

Despite tech stocks being at the epicentre of 2018’s fourth-quarter correction, the IA Technology & Telecommunications sector is another that saw a high proportion of upgrades with 36.4 per cent of its members receiving a higher crown rating in the rebalance.

Polar Capital Global Technology, which is run by Ben Rogoff and Nick Evans, went from having four FE Crowns to five; the only other five-crown member of the sector is Neptune Global Technology, but this is a new rating.

AXA Framlington Global Technology and Fidelity Global Technology moved from three crowns to four while Pictet Digital went from two to three.

IA North America had 35 per cent of its members upgraded in the rebalance, with T. Rowe Price US Large Cap Growth EquityMorg Stnly US Growth and Hermes US All Cap Equity being among those gaining five FE Crowns.


Turning to downgrades and the table below reveals the 10 Investment Association sectors with the biggest proportion of demotions in January’s FE Crown rebalance.

Some 57.1 per cent of IA Japanese Smaller Companies members now have a lower crown rating, reflecting the challenges that faced both Japan and smaller companies in 2018.

BNY Mellon Japan Small Cap Equity FocusBaillie Gifford Japanese Smaller Companies and Janus Henderson Horizon Japanese Smaller Companies are among those being demoted. However, Aberdeen Global Japanese Smaller Companies and M&G Japan Smaller Companies have been promoted.

IA Europe Excluding UK is a much more mainstream sector and 50 per cent of its members suffered an FE Crown downgrade in the rebalance. Europe has just had a tough year, with its markets affected by slowing growth and political uncertainty.

 

Source: FE Analytics

Aviva Inv Continental European Equity, Barings European Growth TrustGAM Star Continental European Equity and Oyster Continental European Selection took some of biggest downgrades as they all fell from four FE Crowns to just one.

In IA China/Greater China, Baillie Gifford Greater ChinaInvesco Hong Kong & China (UK) and Matthews China Dividend are some of the members that have just been demoted.

The above looks at sectors with the most change in their FE Crown ratings, but which had the least amount of churn?

Our data shows that 76 per cent of IA Sterling Strategic Bond funds still have the same rating as they did before the rebalance, followed by IA Global Bonds (67.3 per cent), IA North American Smaller Companies (64.3 per cent), IA Mixed Investment 0-35% Shares (61.7 per cent) and IA Unclassified (61 per cent).

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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.