The IA UK Equity Income sector is the only peer group where the average member has been less volatile than the FTSE 100 over the past three years, according to the FE Risk Scores.
FE Risk Scores are a measure of relative risk, rather than absolute risk, and measure a fund’s volatility against the UK’s largest 100 companies. A score of 100 means that a fund has displayed the same risk as the FTSE 100 while a higher score means it has been more volatile; pure cash scores zero.
The scoring system uses a minimum of 18 months and a maximum of three years of weekly total returns in its calculations and with markets just going through a volatile year, we reviewed the Investment Association universe to see if any sectors had an average FE Risk Score of less than 100.
Performance of funds vs sector over 3yrs
Source: FE Analytics
Only one equity peer group achieved this but it’s a major one: the IA UK Equity Income sector. Our data shows that the average IA UK Equity Income fund has an FE Risk Score of 95. Some 66 of the peer group’s 87 eligible members have a risk score of less than 100.
The fund with the lowest is VT Tyndall Real Income (which scored 70). This £2.2m fund, which is managed by Alex Odd, is in the sector’s bottom quartile over three years but jumped into the top quartile in 2018’s challenging conditions.
LF Miton UK Multi Cap Income and Trojan Income come next with respective scores of 71 and 76. They too have lagged their average peer over the past three but moved towards the top of the sector in 2018 thanks to their more defensive approach.
The fund from the peer group with the highest FE Risk Score is JOHCM UK Equity Income, standing at 114. While this £3.3bn fund – which is run by James Lowen and Clive Beagles – is in the bottom-quartile over one year, the higher-risk approach has worked over the long run as it is top-decile over three and 10 years.
As the table below shows, the other UK equity sectors have performed relatively well – on average – when it comes to the FE Risk Scores. The IA UK All Companies peer group has an average FE Risk Score of 107 while 91 of its 262 members scored less than 100; in the IA UK Smaller Companies sector, these stats stand at a 108 average risk score and 10 of 46 members.
The IA UK All Companies funds with the lowest FE Risk Scores are Invesco Income (76), Invesco High Income (79) and Schroder MM UK Growth (80). With a score of 160, Allianz UK Mid Cap has been the riskiest relative to the FTSE 100.
Source: FE Analytics
LF Gresham House UK Micro Cap is the IA UK Smaller Companies fund with the lowest risk score at 77, followed by MI Downing UK Micro-Cap Growth (78) and Liontrust UK Micro Cap (84). Marlborough Special Situations has the highest at 140.
Of all the Investment Association’s equity peer groups, IA China/Greater China has the highest average FE Risk Score of 177. Every one of the peer group’s 36 members has a score in excess of 100.
Three of its funds scored more than 200: GAM Star China Equity (235), Matthews China (210) and GS China Opportunity Equity Portfolio (206). Matthews China Dividend has the lowest risk score in the sector, but this still came in at 135.
The IA Japanese Smaller Companies, IA Technology & Telecommunications and IA North American Smaller Companies all have an average risk score of more than 150. Every Japanese smaller companies and North American smaller companies fund is above 100 as is all but one fund in IA Technology & Telecommunications; the exception here is Fidelity Global Infrastructure.
Looking at the fixed income sectors and, as the table below shows, IA Sterling Strategic Bond comes in first place with an average FE Risk Score of 24. Every one of the 86 funds have a risk score below 100, with two scoring just 10.
Royal London Short Duration Credit is one of these two; the £735.8m fund is manged by Paola Binns and aims for a combination of mainly income with some capital growth over the medium-to-long term. The four FE Crown-rated fund has a pure short duration approach and is designed to protect investors against surprise or longer-term rises in interest rates.
The £72.4m BlackRock Fixed Income Global Opportunities fund, which is managed by Bob Miller, Rick Rieder and Andreas Doerrenhaus, also scored 10. The managers aim for returns that are uncorrelated with the broader bond market and use a risk-focused process that takes many small bets rather than a few large ones.
IA UK Index Linked Gilts has the highest average FE Risk Score at 97. Three funds scored above 100 here: Baillie Gifford Active Index-Linked Gilt Investment, AXA Sterling Index Linked Bond and iShares Index Linked Gilt Index (UK).
Source: FE Analytics
In the case of the multi-asset funds, the average IA Mixed Investment 0-35% Shares member has an FE Risk Score of 32. This means it beat the IA Targeted Absolute Return sector, where the average fund scored 40.
IA Mixed Investment 20-60% Shares scored an average of 50, IA Mixed Investment 40-85% Shares averaged 72 and the risk score was 80 for the IA Flexible Investment sector.