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.
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.