Funds that are utilising a value style of investment are outperforming those that don’t in the latest FE fundinfo Crowns rebalance.
The latest Crowns rebalance – which takes place twice a year in January and July – showed that value style funds, across all equity markets – performed considerably better in this latest rebalance compared to those that followed a growth style; for example, those funds that invested in technology.
This investment approach has had a complete reverse in form since the release of the Covid Vaccine and was the only way to mitigate the sell-off in equity markets that occurred last year.
This trend differs from that seen in the last rebalance when – three years since the Covid market turbulence – we saw a great deal of market rotation.
5-Crown rated funds
Overall, 163 funds gained the 5-Crown rating during this latest rebalance, bringing the total number to 340. To qualify for the highest rating, funds must be in the top 10% of ‘Crown Scores’, which are calculated in three parts, each referenced to a benchmark. Funds must also have a three-year history to qualify.
Sectors and groups
In sector terms, the winners came from the Sterling Strategic Bond and Infrastructure sectors with the IA Infrastructure sector having seven out of 23 funds (30.4%) 5 Crown rated and the Sterling Strategic Bond sector 23 out of 77 (30%). In very challenging conditions for fixed income markets, active bond managers have shown their capacity to protect from downside by decreasing their interest rate sensitivity. Additionally, the Healthcare sector recorded three out of 10 funds (30%) 5 Crown rated.
When compared to six months ago, the picture was similar, with the winners still coming from the Strategic Bond (21 of 77 – 27%) and Infrastructure sectors (six of 21 – 29%).
There were, however, changes once again among the groups with some fund managers seeing some significant changes from the start of the year.
7IM saw the largest downturn dropping from five, 5 Crown rated funds to zero. Elsewhere, Fidelity lost four, 5 Crown rated funds, which saw them go from nine to five and 11 to 7.
However, M&G saw their numbers rise by six 5 Crown rated funds taking their total from three to nine, while Schroder’s rose by five taking their total to 13. Elsewhere, Artemis gained four 5 Crown ratings bringing their total up from zero previously.
What all those groups have in common is a stronger value discipline, with a willingness to not overpay for growth. Since the great financial crisis, this investment style was out of favour but is finally back in favour after the Covid crisis.
Charles Younes, Head of Manager Selection, FE Investments, commented:
“This trend towards a value style differs from that of six months ago. Funds such as LF Morant Wright Japan or Schroder Global Recovery have done well and been upgraded to a four or five crown rating because of their strong outperformance over the last three years.
“Despite the style being out of favour for so long, they have maintained their valuation discipline approach which has finally paid off recently. This trend towards value is worth keeping an eye on and it will be interesting to see if it persists if we reach the peak of the interest rate cycle.”
| Group | Number of funds | Number of five Crown funds | % of five Crown funds | |
| Quilter Investors | 54 | 13 | 24% | |
| Schroders | 102 | 13 | 13% | |
| Royal London | 49 | 12 | 24% | |
| BNY Mellon | 54 | 10 | 19% | |
| Invesco | 58 | 10 | 17% | |
| M&G UK | 43 | 9 | 21% | |
| Scottish Widows | 51 | 7 | 14% | |
| Jupiter Asset Management | 63 | 7 | 11% | |
| Fidelity | 85 | 7 | 8% | |
| True Potential Investments | 26 | 6 | 23% | |
| Premier Miton | 36 | 6 | 17% | |
Methodology
FE fundinfo Crown ratings are calculated by building up a ‘Crown Score’. The score is made up of three parts, and each part is calculated by reference to a benchmark for the fund. Once the benchmark is assigned, FE fundinfo then applies three tests (an alpha based test, a volatility score and a consistency score) to the total return history of the fund. Three years of history is required to carry out these scores, so any fund with less history than this will not qualify for a rating.
Funds are assigned ratings based on their total scores, according to the following distribution:
· the top 10% – 5 FE fundinfo Crowns
· the next 15% – 4 FE fundinfo Crowns
· the next 25% – 3 FE fundinfo Crowns
· the next 25% – 2 FE fundinfo Crowns
· the bottom 25% – 1 FE fundinfo Crown
Charles Younes, Head of Manager Selection, FE Investments, added:
“Crown ratings offer investors an opportunity to compare and contrast the performance of a fund over an extended period of time and throughout different market conditions. As the last three years have shown significant and quick market rotation, the Crown ratings are more important than ever to give a solid quantitative assessment of a fund’s performance over a market cycle.”
For more information, please visit fefundinfo.com.
Download the July 2023 Crowns Rebalance Data Pack.
