Regional equity funds focusing on Europe and Asia, as well as the IA UK Equity Income sector, are peer groups where most investors are holding funds that score well under the FE Crown Ratings system, research by FE Trustnet reveals.
Designed to help investors distinguish between funds that are strongly outperforming their benchmark and those that are not, FE Crown Ratings identify funds that have displayed superior performance in terms of stockpicking, consistency and risk control in recent years.
The top 10 per cent of funds are awarded five FE Crowns, while the next 15 per cent receive four crowns. Each of the remaining three quartiles are given three, two and one crown(s) respectively.
The quantitative FE Crown Ratings are backward looking, but the below chart shows the difference in total returns that have been experienced by the average one and five crown-rated fund from the IA UK All Companies sector.
Performance of average five and one FE Crown-rated IA UK All Companies funds over 10yrs
Source: FE Analytics
In a previous article, we revealed the sectors that have the highest amount of their total assets under management (AUM) in funds that score poorly under the ratings.
Then, we found that 66.4 per cent of the money in the IA UK Gilts sector is held in funds with just one FE Crown. In the IA Sterling Strategic Bond sector, 38.3 per cent of AUM is in the worst-rated funds while it stands at 36.1 per cent for the IA Global Bond peer group.
In this article, however, we take a more positive approach and reveal which Investment Association sectors have the highest concentration of assets in five and four FE Crown-rated funds.
The below table shows the 10 peer groups with the highest proportion of assets in five FE Crown-rated funds; more than two-fifths of the members of the IA Europe Excluding UK sector hold this accolade.
In total, there are 21 funds in the sector that hold a five-crown rating but the largest by some margin is the £4.9bn Jupiter European fund, which is headed up by FE Alpha Manager Alexander Darwall. A recent FE Trustnet article also revealed that the fund has been the most heavily researched fund on FE Analytics over the course of 2017.
Other large IA Europe Excluding UK members holding the highest crown rating include the £3.2bn Threadneedle European Select, the £2.7bn BlackRock European Dynamic and the £2bn FP CRUX European Special Situations funds.
Source: FE Analytics
The peer group seems to be a fairly good hunting ground for active managers, with its average member generating 82.84 per cent total return over the past 10 years compared with a 66.28 per cent gain in the MSCI Europe ex UK index.
Furthermore, the sector only has six members – with combined AUM of £602.2m or just 1.2 per cent of the total – in funds holding the lowest rating of one FE Crown.
In general, the international equity sectors are well represented on the list. IA China/Greater China – which has been one of the strongest performers this year – has five-crown members such as Fidelity China Focus, HSBC GIF Chinese Equity and NB China Equity, while IA Global is home to Fundsmith Equity, Morgan Stanley Global Brands and Lindsell Train Global Equity.
Although investors are a little cold on the UK equity sectors at the moment, two can be found on the list.
IA UK Equity Income made it on there on the back of large five-crown funds like CF Woodford Equity Income, Trojan Income and Jupiter Income Trust. IA UK Smaller Companies has highly rated members such as Marlborough UK Micro Cap Growth, Liontrust UK Smaller Companies and Old Mutual UK Smaller Companies Focus.
Looking at the list of the sectors with the most money in funds holding four FE Crowns shows a different selection of peer groups, but one still topped by a regional equity fund.
IA Asia Pacific Including Japan is in first place as 80.4 per cent of its total AUM is in four-crown funds. The amount of money run by four- and five-crown funds is equivalent to 89.5 per cent of its AUM.
It’s worth keeping in mind that this is a relatively small peer group with just seven members eligible for a rating. Of these, four – Invesco Perpetual Pacific, JPM Pacific Equity, Matthews Asia Asia Dividend and Smith & Williamson Far Eastern Income and Growth – hold four crowns while Baillie Gifford Developed Asia Pacific is the sole five-crown member.
Source: FE Analytics
IA European Smaller Companies is a larger peer group. Five of its 22 members hold four FE Crowns and two have five crowns; the four-crown members include Baring Europe Select, Henderson European Smaller Companies and JPM Europe Small Cap.
The sector in fifth place – IA Mixed Investment 40-85% Shares – is one of the largest in the Investment Association universe as it is home to more than 120 funds that are eligible for a crown rating. Some £16.6bn is held in four-crown funds with another £8.7bn in those with five crowns.
The peer group’s four crown-rated members include BlackRock NURS II Consensus 85, Vanguard LifeStrategy 60% Equity and OM Cirilium Moderate Portfolio, while Baillie Gifford Managed, Jupiter Merlin Balanced Portfolio and Premier Multi-Asset Growth & Income have five crowns.
In addition to being on the list of sectors with plenty of assets in five-crown funds, IA UK Equity Income is also in the top 10 for money held in four-crown funds thanks to the likes of Artemis Income, Threadneedle UK Equity Income and Royal London UK Equity Income.