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UK fund sectors top FE Alpha Manager table

29 November 2017

The three UK equity sectors are home to the highest concentration of FE Alpha Managers, according to research by FE Trustnet.

By Gary Jackson,

Editor, FE Trustnet

Investors seeking consistently strong fund managers appear to have a greater chance of finding them in the IA UK Smaller Companies, IA UK Equity Income and IA UK All Companies sectors rather than areas such as IA Property and IA Japan.

That’s how the numbers fall for the FE Alpha Manager rating, which seeks to identify the most talented fund managers operating in the UK today.

The methodology behind the FE Alpha Manager rating assesses the performance of fund managers over their career, including all funds they have managed and places worked. It is intended to distinguish fund managers who have consistently performed well over the longer term.

Elements considered by the rating include a manager’s risk-adjusted alpha, the Sortino ratio (a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility) and consistent outperformance of a benchmark.

Performance of sector vs index over 10yrs

 

Source: FE Analytics

In this article, we wanted to identify the Investment Association sectors with the highest concentration of FE Alpha Managers.

It was the IA UK Smaller Companies sector that came out on top, with 15 of its 47 funds headed by an FE Alpha Manager – or 31.9 per cent of its members. The above chart shows how the average fund in this peer group has outperformed the FTSE Small Cap ex ITs index over the past decade with a 170.49 per cent total return.

Funds run by an FE Alpha Manager include Harry Nimmo’s Standard Life Investments UK Smaller Companies, Andrew Brough’s Schroder UK Smaller Companies and Alex Wright’s Fidelity UK Smaller Companies.


The largest IA UK Smaller Companies fund with an FE Alpha Manager at the helm, however, is the £1.5bn Marlborough Special Situations fund. This is run by FE Alpha Manager Giles Hargreave with Eustace Santa Barbara as co-manager.

The fund is currently in the sector’s top quartile over five years after making a 151.45 per cent total return, compared with a 115.09 per cent gain by its average peer. It is also in the second quartile over one- and three-year periods.

“Hargreave has been running this fund since 1998 and has consistently outperformed the market and peers. In particular, the fund has outperformed in falling markets, such as the crisis year of 2008, or more recently the sell-offs in 2011 and 2014,” the FE Invest team said.

“This is mainly due to good stock selection and risk management in troubled positions, but is also due to maintaining a high number of stocks, which means that huge losses in any one holding can’t affect the portfolio too much.”

 

Source: FE Analytics

The FE Alpha Manager rating seeks to identify the top 10 per cent of the industry’s talent. As such, the above table shows all of the sectors where more than 10 per cent of the funds are headed by a rated manager. There are 16 in total, although some of them – such as IA Protected and IA Asia Pacific Including Japan – are very small peer groups.

From the above table, it seems that the UK sectors are particularly good hunting grounds for the industry’s best managers; some 20.7 per cent of the funds in the IA UK Equity Income sector have an FE Alpha Manager in charge while 17.8 per cent of IA UK All Companies funds are run by a rated manager.


Within the IA UK Equity Income sector, funds run by FE Alpha Managers include Neil Woodford’s CF Woodford Equity Income, Carl Stick’s Rathbone Income and Francis Brooke’s Trojan Income funds.

Over in IA UK All Companies, Mark Barnett’s Invesco Perpetual IncomeInvesco Perpetual High Income and Invesco Perpetual UK Strategic Income funds all into this category, as do Nick Train’s CF Lindsell Train UK Equity, Nick Kirrage and Kevin Murphy’s (who both hold the rating) Schroder Recovery and Luke Kerr’s Old Mutual UK Dynamic Equity funds.

 

Source: FE Analytics

However, not all of the Investment Association sectors are such rich hunting grounds for FE Alpha Managers.

The table above shows the sectors were less than 10 per cent of funds have an FE Alpha Manager working on them. As can be seen, some of the more niche peer groups like IA Japanese Smaller Companies and IA Technology & Telecommunications do not have a single FE Alpha Manager.

There are two in the IA Property sector: Guy Morrell’s HSBC Global Property fund and Michael Barrie’s L&G UK Property fund, which is co-managed by Matt Jarvis.

Meanwhile, the IA Japan sector has three FE Alpha Manager-run funds: Martin Lau’s First State Japan Focus (co-managed by Sophia Li), James Salter’s Polar Capital Japan and Chisako Hardie’s AXA Framlington Japan.

John Chatfeild-Roberts and Algy Smith-Maxwell’s Jupiter Merlin Conservative Portfolio, Paul Craig’s OM Cirilium Conservative Portfolio and Alastair Gunn’s Jupiter Distribution, which is co-managed by Rhys Petheram, are the funds making the cut in IA Mixed Investment 0-35% Shares.

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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.