Drilling down to find the star performers

This article is part of
Investment Adviser 100 Club 2015 - September 2015

The Investment Adviser 100 Club breaks down the industry into 20 categories and updates the members every year to ensure it contains the best the fund management industry has to offer.

Membership is decided by rigorous number crunching by the Investment Adviser editorial team. The methodology employed is designed to ensure members have outshone not just in the short term but also across a five-year period.

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

Article continues after advert

Calculations are based on funds’ total returns over one and five years relative to the total returns of the relevant benchmark index or sector. Data was sourced from FE Analytics and all performance figures quoted are bid-to-bid and rebased in sterling where necessary.

Candidate funds are ranked by their outperformance of a relevant benchmark in the year to May 31 2015. To check they are durable, long-term products they are then screened to ensure they delivered strong five-year returns. A fund must have at least a 10 percentage-point gap between its performance and that of its index in the past five years to convince us it has long-term staying power.

We expect it to deliver at least half that level of outperformance over one year – 5 percentage points or more for equity funds – to ensure it has delivered the kind of returns that would place it in our 100 Club.

Sometimes it is impossible to find funds in a sector that outperform by this demanding margin of 5 and 10 percentage points, so we narrow the margin proportionally – to 4 and 8, then 3 and 6 and so forth.

In order to ensure the funds are truly relevant for intermediaries, the top candidates undergo a further screening process to exclude the following:

• Fund manager tenure of less than three years.

• Mutual funds with less than £50m, and trusts with a market cap below £100m as at May 31 2015.

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

• Products that are not UK authorised or available for distribution to retail investors, or funds that 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- and hard-closed funds, and funds earmarked for soft closure at the time of calculation.

• Funds with no sterling share class.

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

• In the Absolute Return sector, we assessed the funds’ long-term performance over one and three years, rather than the usual one and five. To screen out absolute funds with excessive long-only risk, those funds with a rolling three-year month-end maximum drawdown greater than 8 per cent are excluded.

When the best funds have achieved Investment Adviser 100 Club membership, the five large and mid-to-small investment managers with the most 100 Club member funds enter two provider categories.