Investments  

How we discover the best investment talent

This article is part of
Investment Adviser 100 Club - September 2013

Consisting of 20 categories, the Investment Adviser 100 Club is updated every year to make sure it contains the best talent the fund management industry has to offer.

The numbers are crunched by the Editor of Investment Adviser, the Financial Times’s award-winning weekly magazine for investment professionals, based on a rigorous methodology.

Investment Adviser 100 Club members have to outshine not just in the short term but also over a five-year time period.

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The Investment Adviser 100 Club enables mutual funds and investment trusts to compete head-on, with trusts’ share price total returns considered. It also includes a selection of the best passive investment providers, making it an RDR-ready tool for intermediaries.

The calculation process is based on funds’ total returns over one and five years relative to a broadly relevant benchmark index or sector. The benchmark is chosen so a large group of funds can be reasonably compared against it. The data source was FE Analytics and all performance figures quoted are bid-to-bid, rebased in sterling. The performance figures range to June 30 2013.

We assess a fund’s five-year performance to check it is a durable, long-term product, as well as performing the annual one-year calculation. A fund must have put a double-digit gap between its performance and that of its index in the past five years for it to convince us that it has staying power.

We expect it to deliver half that level of outperformance over one year – five percentage points or more – to ensure it has delivered the kind of elite returns that would place it in our annual club of 100 funds.

Sometimes it is impossible to find funds in a sector that outperform by this demanding margin, so we narrow the margin proportionally – to four and eight, then three and six and so on. In the competitive UK Equity category, funds must have delivered at least 10 percentage points of outperformance in one year and 20 percentage points in five years.

The top funds are then screened to exclude the following, to ensure relevance to intermediaries:

• Fund manager tenure less than 3 years.

• Mutual funds with less than £50m, trusts with a market cap below £100m.

• Enhanced index or other ‘passive-plus’ funds.

• Products that are not UK authorised or available for distribution to retail investors, or funds which have an excessively selective distribution policy.

• Repeat funds from the same fund manager. If a fund manager qualifies more than once in any one category, the best-performing product gains entry.

• Soft-closed funds, and funds earmarked for soft closure before June 30 2014, are disqualified to ensure membership is relevant to fund buyers.

• Funds with no sterling share class.

• Funds that fail to make information such as performance, minimum investment, tenure, how to invest etc available to data providers and the public.

• In the Absolute Return sector, we assessed long-term performance over one and three years, rather than the usual one and five. Funds with a monthly maximum drawdown of more than 8 per cent at any time in the past three years were excluded.