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The giant equity funds that are getting even more attention than their size would suggest

09 April 2019

FE Trustnet discovers which funds are winning a disproportionate level of research given their assets under management.

By Gary Jackson,

Editor, FE Trustnet

MI Somerset Emerging Markets Dividend GrowthRathbone Global Opportunities and Vanguard LifeStrategy 100% Equity are among the equity funds that are being researched by professional investors more than you’d expect from their current size, according to FE Trustnet analysis.

FE Analytics is a fund research tool used by thousands of financial advisers, wealth managers, paraplanners and other professional fund pickers and looking at its underlying research trends offers unique insight into what is happening in the market.

One common finding is that the most research tends to go to the biggest funds. For example, the £18.6bn Fundsmith Equity fund is one of the largest strategies in the industry – and, more often than not, the most heavily researched fund on FE Analytics.

This shouldn’t be too surprising: after all, the larger the fund, the more common it will be in individual portfolios and more professional investors will be keeping an eye on it. But in this article, we wanted to find out which large funds are attracting even more research than their size would suggest.

In order to do this, we worked out the average number of research hits that £1m in AUM brought into each of the Investment Association’s equity sectors over the past 12 months then filtered for funds with assets of more than £1bn and a hit ratio higher than this.

Performance of funds vs sector and index since launch

 

Source: FE Analytics

The chart above shows the long-term performance of the fund that came in first place in this research: MI Somerset Emerging Markets Dividend Growth. This £1bn fund has received 16.5 research hits on FE Analytics for every £1m in AUM – three times higher than the average of 5.4 for the IA Global Emerging Markets sector.

The fund, which is headed up by Edward Lam, has made a 68.79 per cent total return since launch in March 2010, ranking it ninth out of 49 funds in the peer group. It also has the sector’s lowest volatility and maximum drawdown numbers, as well as the fifth best Sharpe ratio.


The FE Invest, which has MI Somerset Emerging Markets Dividend Growth on its Approved List, said: “Lam and his team focus on fundamental analysis of companies and their balance sheets, with a strong focus on corporate governance, which is often a problem in the developing world.

“However, Lam has managed to add significant value through his macroeconomic analysis and has shrewdly avoided a number of the troubled sectors and geographies at the appropriate times, such as high yielders, oil & gas and China, which has helped him to attain an impressive record of outperformance.”

Next on the list is the £1bn Merian Global Equity fund, which managed by Ian Heslop, Amadeo Alentorn and Mike Servent. It has received 15.8 research interactions for every £1m in AUM, compared with an average for the IA Global sector of 5.5 (so 2.9 times above the average).

 

Source: FE Analytics Market Intel Tool

The four FE Crown-rated fund is run with a systematic process that screens the global equity universe using five factors, including valuation metrics, analyst sentiment and market dynamics. This has resulted in top-quartile returns over the past three, five and 10 years.

As the chart above shows, there are quite a few of the IA Global sector’s larger funds that are winning more research interactions per £1m than the average for their peer group.

As would be expected, many of these – such as Rathbone Global Opportunities, Vanguard LifeStrategy 100% EquityBaillie Gifford International and Standard Life Investments Global Smaller Companies – have garnered interest from professional investors on the back of their strong track records.


Global equity funds with more specialised mandates also seem to have the ability to stand out from the crowd. The likes of First State Global Listed InfrastructureLazard Global Listed Infrastructure Equity and Fidelity Global Financial Services are all outperforming in the number of research hits per £1m of AUM.

Several funds on the above list reside in the IA North America sector. Many investors prefer a passive approach here, reflected in the appearance of Fidelity Index US, although stockpicking funds such as Schroder US Mid Cap and Legg Mason ClearBridge US Aggressive Growth have been successful over the long run.

A number of large UK equity funds are also punching above their weight for research interactions, including Schroder Recovery, Rathbone IncomeFidelity Special Situations and Jupiter UK Growth.

 

Source: FE Analytics Market Intel Tool

The three giant equity funds coming at the bottom of this research are AB American Growth Portfolio, AB SICAV I Emerging Markets Low Volatility Equity Portfolio and Allianz Income and Growth – all of which attracted 0.1 research interactions per £1m in AUM.

It’s also worth pointing out that Fundsmith Equity – which is the most researched fund on FE Analytics – is actually underperforming relative to its AUM.

For the IA Global sector average, £1m of asset results in 5.5 research hits on FE Analytics but over the past 12 months Fundsmith Equity received 3.4 interactions per £1m.

Of course, this doesn’t suggest that the fund is being overlooked – its performance remains among the very best of its peer group and inflows have been strong. Instead, it could be that holders are happy with the portfolio and do not need to carry out extra research to decide whether to buy or not.

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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.