InvestmentsMay 29 2018

Fund House of the Year 2018: The results

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Fund House of the Year 2018: The results

If 2016-17 was, against all odds, a period of relative serenity for global markets, then things proved a little different over the course of the 2017-18 tax year. Money Management’s annual study of fund houses seeks to identify those that have been the most consistent over this 12-month period – through good times and bad.

The period analysed incorporates the uptick global equity markets enjoyed in the second half of 2017, as well as the sharp drawdown suffered in the opening months of this year. That slump effectively erased a fair whack of the returns made over the 12-month period: the FTSE World index rose 2.25 per cent over the relevant time frame, while the FTSE All-Share gained just 1.25 per cent. 

At the same time, most bond yields have also moved upwards, due to concerns over higher inflation and rising interest rates. So it’s no surprise that funds have, on the whole, done worse than in 2016-17. 

Overall, the results are more akin to those seen in 2015-16. Back then, just five firms managed to turn a £1,000 investment into £1,100 or more. Last year, by contrast, several firms broke the £1,200 barrier. No fund group has done so in 2017-18, as Table 1 shows.

Methodology

Our performance period has been adjusted this year. Rather than assessing the year to May, we have analysed returns over the year to the start of April. Using FE data for the year to 1 April 2018, we have identified the best fund groups by average return and the best by average sector ranking against peers – measured across a company’s entire eligible fund range. 

This year’s results again split firms into large, medium and small groupings, but there is one slight adjustment to these categories. We know that mergers and acquisitions mean the biggest fund groups are getting bigger: witness the newly formed Standard Life Aberdeen, which alone accounts for more than 150 of the funds analysed this year. At the same time there remain a limited number of these behemoth businesses. Therefore, in an effort to introduce more competition in our ‘large firm’ category, we have lowered the minimum number of funds required from 40 to 35. That means a medium-sized fund house is now defined as one with between 10 and 34 eligible funds. Small groups remain those with fewer than 10.

To be eligible for inclusion, funds must be suitable for advisers, meaning those whose name specifies an institutional mandate were excluded. Money market funds were also omitted this year. 

Single-asset passive funds were also left out. But multi-asset passive offerings such as Vanguard’s LifeStrategy range have been assessed, on the basis that asset allocation is a core skill for fund managers.

Conventional tracker funds will instead form part of Money Management’s inaugural tracker survey later in 2018. The fund universe used for the survey is the Investment Association (IA) sectors – portfolios are classified according to the IA groupings, and those funds that sit outside the sectors were ineligible.

Nonetheless, it should again be noted that even two firms in the same category may not be directly comparable, particularly at the lower end of the scale. The performance of a boutique running US equity portfolios is clearly not comparable with that of a fixed income specialist.

So we continue to refine the results by asset class, as illustrated in Table 3, to show which firms have proven most adept in a particular area of the market. By the same token, our findings should not be treated as an investment recommendation – but rather as a guide to the past year’s successes.

Leading lights

Despite the shift in market conditions, JPMorgan Asset Management (JPMAM) tops Table 1 for the second consecutive year. It marks the first time in the survey’s history that a fund house has retained its number one position. 

It is fitting, then, that last year the firm’s then head of sales, Jasper Berens, said the asset manager’s success was in part due to its ultra-low levels of manager turnover. Less fitting is the fact the company has seen some high-profile departures over the past year, including chief economist Stephanie Flanders and multi-asset manager Talib Sheikh.

Mr Berens has also moved on. But last year he cited JPMAM’s “portfolio managers on the ground all over the world” as an important attribute, and this quality did help the asset manager again in 2017-18. The firm’s Japan, China and Asia Growth funds are its standout performers, along with the Macro Opportunities fund previously co-managed by Mr Sheikh.  

The most consistent large firm by average sector decile is a very different beast. Royal London Asset Management (RLAM), known in particular for its fixed income funds, has prevented JPMAM from doing the double. Its average sector decile of 4.7 (on a scale where 1 represents the top 10 per cent and 10 is in the bottom 10 per cent) has been bolstered by standout performances from the Sterling Credit fund run by Paola Binns and the Sterling Extra Yield Bond fund managed by Eric Holt. Both are in the top 10 per cent of their respective Corporate and Strategic Bond sectors over the year to 1 April.

Unlike last year, there is plenty of commonality among other entrants in Table 1. Invesco, Jupiter and Schroders all return in the large groups section; Baillie Gifford, Neptune, Lazard, Polar Capital and Barings make repeat appearances in the mid-sized category; Mirae Asset Management and Morant Wright are again in the small firm grouping. Legg Mason is also back, albeit this year in the largest category as a result of the changed eligibility criteria.

Notably, where Table 2  is concerned, last year’s top five – BlackRock, Old Mutual Global Investors, M&G, Schroders and JPMAM – all return this year. Baillie Gifford and Artemis return to the mid-sized category, and boutiques Chelverton and Seneca are once again among the small firm winners.

Baillie Gifford tops both Table 1 and Table 2 in its category, while Mirabaud is runner-up in both categories. The Swiss fund house’s European and global equity offerings have proved particularly successful over the 12-month period, while Baillie Gifford has enjoyed sustained outperformance across a significant proportion of its 31 eligible funds.

Two UK equity boutiques rank highly among the smallest asset managers. Chelverton and Sanford DeLand – the latter home to the increasingly prominent Buffettology fund, based on the investment principles of Berkshire Hathaway chair Warren Buffett – score well in Tables 1 and 2. But it is Edinburgh-based Aubrey Capital that tops Table 1 due to the performance of its Aubrey Global Conviction equity offering. 

The winner

This year’s individual standout is the Neuberger Berman China Equity fund, which has turned £1,000 into £1,344 over the 12-month period. A rise of more than 30 per cent is impressive, but even this is markedly down on last year’s individual winner: Polar Capital Global Technology returned £1,601 in 2016-17.

Some would argue that the China fund’s rise is more sustainable, but in other areas of the market firms have struggled to produce positive results of any kind. The firms listed in the North America section of Table 3, for instance, had little competition. Most fund houses with North American funds failed to achieve a positive return across their portfolios over the period.

One caveat to this statistic is that the S&P 500 index dipped slightly in sterling terms, dropping 0.4 per cent. 

Some asset classes were more fiercely contested. There is little to choose between the nine firms featuring in the European equity portion of the table, nor between those in the Property grouping – despite the disparate nature of funds in this latter sector.

Standouts do still exist. Baillie Gifford underlines its strengths by featuring in five of the 10 individual asset classes, and topping the tables in three of them: Global, North America and Asia. 

RLAM, meanwhile, emphasises where its own capabilities lie via its third place in the fixed income rankings for large groups. This is all the more notable for the fact that the firm achieved its return of £1,021 on £1,000 across 18 funds – comfortably the largest number of any group in any category.

Future prospects

Understanding clients’ risk appetite – and capacity for loss – remains the crucial piece of the investment puzzle. But taking the next step is becoming increasingly complicated, too. Asset-allocation decisions are not as simple as they once were, particularly as reliable income streams are proving increasingly tough to come by.

Fixed income has continued to capture investors’ attention over the past 12 months, despite yields rising on the back of a series of US interest rate hikes and the first in the UK for a decade. The major beneficiary has been the Strategic Bond fund sector, a more flexible group of portfolios that are theoretically able to better weather future storms.

There are early signs that this confidence is waning, however. Strategic Bond funds saw net outflows in March, their first collective redemptions in more than a year. 

At the same time, many equity markets that suffered notable drawdowns at the start of the year are back at record highs again. As the midpoint in 2018 nears, investors face a familiar conundrum: is there any value left in either shares or fixed income?

When it comes to relative valuations, the ongoing rise in bond yields has convinced some that different opportunities are starting to emerge.

Edward Park, investment director at Brooks Macdonald, says: “The US market continues to trade [at around] 16.5 times the next 12 months’ earnings, which is slightly above the long-term average but remains attractive versus bond yields. 

“Given this we still prefer equities over bonds, but are adopting a more neutral equity position given the increased risk posed by shifting central bank policy.”

But with this kind of decision remaining finely balanced, and advisers keen to take a long-term view, it is multi-asset funds that have attracted the most interest of late. Significant amounts of money continue to flow into these portfolios – whether they be traditional balanced propositions, risk-rated ranges, or absolute return offerings. 

Our survey highlights some of the best firms in the mixed investment sector – and it also provides a starting point for those who continue to blend different funds themselves. As the bull market continues to mature, making those judgements will become more important than ever.

 

IN NUMBERS 

2,900 – number of funds analysed in this year’s study

£1,344 – return of top-performing fund Neuberger Berman China Equity

1.25% – rise in the FTSE All-Share index over the 2017-18 period