It’s home to lesser-known funds from groups that readers will recognise, as well as some fund houses which they may not: names such as Amati, Atlantis and Seneca.
As with our annual 100 Club list of funds, the Hidden Gem Club is a purely quantitative selection, based on FE data. But the challenges of identifying smaller portfolios with potential mean we’ve used a slightly more complex methodology.
The 100 Club, based on three- and five-year performance figures, is unavoidably backwards looking – Investment Adviser has never denied that.
For the Hidden Gem Club, we’re similarly unable to predict the future, and there’s the added problem in that many funds under consideration have no long-term track records.
Some of the very best funds of the future will have no short-term record either. Others, because of the way investment styles go in and out of favour, may even have a bad track record.
Nonetheless, parameters had to be set. We’ve opted to look at funds between £10m and £100m in size – avoiding the sub-£10m funds, which may be at risk of closure – and judged them by their one-year information ratios.
This metric measures risk-adjusted returns, and the consistency of those returns, in a bid to identify the level of skill a manager has employed in beating their benchmark.
The ratio isn’t without its flaws. Using it over a one-year time frame increases the chance that a manager’s success may be in part down to luck. A longer time frame would have excluded many new portfolios, a shorter one might produce more misleading outcomes. But it gives us more insight than simple one-year performance into which managers are truly adding value.
That’s of obvious use when trying to find the standouts among funds that have recently launched, or have a new management team, or are simply being managed well without actually getting much recognition.
Another problem with the information ratio is that it becomes less useful if a fund doesn’t bear a decent resemblance to its benchmark. Therefore, we’ve checked that each member of the Club also has a high ‘R-squared’ value to guard against this.
For our Hidden Gem Club, we’ve used funds’ sector average as the benchmark, in doing so trying to ensure the vehicles are being compared against their better-known peers.
But one grouping for which comparisons are difficult is absolute return funds. We’ve measured these strategies using another risk-adjusted measure, the Sortino ratio.
Over the next few weeks we’ll be looking in more detail at some of the portfolios, but for now, we hope you find the Club of interest.
Hidden Gem Club methodology
Funds must be more than £10m but less than £100m in size
Offshore funds/trusts also considered, but not when there is an onshore equivalent
Must be available to retail advisers
Calculated using best information ratios over one year to end-March
Absolute return funds calculated using the Sortino ratio
IA Hidden Gem Club 2016
UK Equity
Chelverton UK Equity Growth
Premier ConBrio Sanford Deland UK Buffettology
TB Amati UK Smaller Companies
European Equity
Liontrust European Growth
Marlborough European Multi-Cap
Montanaro European Income
North American Equity
BlackRock North American Income Trust
Neptune US Income
Sanlam Four US Dividend Income
Japan Equity
Atlantis Japan Opportunities
Axa Framlington Japan
Global Equity
Electric & General
Investec Global Franchise
Emerging Markets
Schroder ISF Global EM Smaller Companies
Aviva Investors Emerging Markets Equity Small Cap
Asia Pacific
Fidelity Asia Pacific Opportunities
JPMorgan Eastern Smaller Companies
Mixed Asset
SF Cautious
Brompton Global Balanced
Troy Spectrum
Mixed Asset Income
Newton Multi-Asset Income
Seneca Diversified Income
Specialist Bond Funds
Baillie Gifford Global Bond
BNY Mellon Emerging Markets Corporate Debt
Rathbone Strategic Bond
Corporate Bond Funds
Legg Mason IF Western Asset Retirement Income Bond
Threadneedle UK Social Bond
Absolute Return
Polar Capital UK Absolute Equity
Artemis US Absolute Return
BlackRock European Absolute Alpha
