Sectors holding funds investing in Asian equities, tech stocks and UK small-caps are among those that have the biggest proportion of their members with the highest FE Crown rating.
Last week witnessed the first rebalancing of 2019 for the FE Crown ratings, which aim to help investors identify funds that have displayed superior performance in terms of stock picking, consistency and risk control over the past three years.
Under the ratings system, 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.
We have already examined the individual funds undergoing the biggest changes in their crown rating as well as those earning the top rating of five as soon as they became eligible.
Source: FE Analytics
In addition to this, FE Trustnet ran the numbers to find out which peer groups have the largest proportion of their members now holding a FE Crown rating of five. All those with more than 10 per cent of their funds holding this rating (excluding sectors with fewer than 10 members) can be seen above.
The IA Asia Pacific Excluding Japan sector tops the table. It has 93 members that are eligible for a rating and 18 of these – or 19.4 per cent – have five crowns.
Over the past three years, the highest return of these 18 funds came from TT Asia Pacific Equity. This £122.4m fund, which is managed by Duncan Robertson, is up 84.24 per cent over this period.
Robertson’s approach is based on fundamental bottom-up stock selection, within an integrated top-down macro framework. “We believe that the best returns are achieved by investing in leading Asia-Pacific companies, operated by honest and competent management in industries that are structurally attractive. We retain a strong valuation focus with a belief in intrinsic value,” fund house TT International said.
The largest IA Asia Pacific Excluding Japan member to hold five FE Crowns, however, is the £2.7bn Hermes Asia ex Japan Equity fund. It has made a top-quartile 66.05 per cent over the past three years.
Headed by FE Alpha Manager Jonathan Pines with Sandy Pei as deputy, Hermes Asia ex Japan Equity has a contrarian and value bias, aiming to find stocks that are attractively priced relative to the quality of the underlying company.
Square Mile Investment Consulting & Research, which gives the fund an ‘A’ rating, said: “The underlying investment philosophy of this strategy, for which the manager shows clear passion and commitment, is fairly straightforward. Pines could be viewed as an opportunistic investor, looking to invest where there is a valuation discrepancy between the market valuation and the team's analysis of valuation.”
Other well-known funds in the sector with the highest crown rating include Invesco Asian (UK), Newton Asian Income and Schroder Asian Alpha Plus.
Performance of funds vs sector over 3yrs
Source: FE Analytics
The sector in second place is IA Sterling Strategic Bond, as 13 of its 77 rated funds – or 16.9 per cent – hold five FE Crowns.
FE Alpha Manager Eric Holt’s Royal London Sterling Extra Yield Bond fund tops the three-year performance table for the whole sector after making 29.80 per cent. The £1.7bn fund aims to generate a high yield through a portfolio of high-yielding bonds; at the moment, 98 per cent of the portfolio is in debt rated ‘BBB’ or below.
Pimco GIS Income is the largest IA Sterling Strategic Bond fund to have a five-crown rating. It has assets of £42.7bn (although most of this is held by investors outside the UK) and is managed by Alfred T. Murata, Daniel J. Ivascyn and Joshua Anderson.
The fund, which has made a second-quartile 13.75 per cent total return over the past three years, is designed to generate a high current income. It invests in a broad range of fixed income securities to achieve this, with portfolio having significant exposure to non-agency residential mortgages as holdings assets like emerging markets debt, high yield bonds and investment grade corporates.
Other top-rated funds in this peer group include GAM Star Credit Opportunities, Baillie Gifford Strategic Bond and AXA Framlington Managed Income.
In IA Volatility Managed is in third place as 16.8 per of its 95 members – or 16 funds – received a top rating in the rebalance.
This sector is a mixed bag of funds that do not necessarily seek to generate the highest possible total return but instead aim to keep volatility within certain limits.
The 16 funds holding five FE Crowns are managed by just four companies: Architas, BlackRock, HSBC and Legal & General. Examples of top-rated funds include Architas MA Passive Dynamic, BlackRock Volatility Strategy III, HSBC Global Strategy Balanced Portfolio and L&G Multi-Index 3.
Source: FE Analytics
Just the top 10 per cent of the Investment Association universe holds five FE Crowns, with the next 15 per cent being given four crowns. Combined these two ratings make up the leading quarter of the industry, according to the FE Crown methodology.
Once again, it is topped by the IA Asia Pacific Excluding Japan sector. Four FE Crown members here include the likes of Fidelity Asia, Templeton Asian Growth and Fidelity Asian Special Situations.
In the IA North American Smaller Companies, Artemis US Smaller Companies, Brown Advisory US Smaller Companies and T. Rowe Price US Smaller Companies Equity hold this rating, as do Baillie Gifford Japanese, Schroder Tokyo and Man GLG Japan Core Alpha in IA Japan.