Investments  

Unheralded top performers await advisers’ attention

  • Understand the benefits of investing in small funds
  • Learn about how small funds are performing
  • Understand the pitfalls for managers of small funds
CPD
Approx.45min

Our methodology, outlined in Box 1, remains unchanged from last year. To qualify, a fund must be available to retail advisers and have more than £10m, but less than £100m, in assets.

The analysis, which has taken in open-ended funds and investment trusts, ranks products by their annualised information ratios over the past three years. This metric has been chosen because it is widely deemed a more accurate reflection of a fund manager’s skill than simple past performance numbers. This is because it’s a risk-adjusted measure, taking into account the amount of risk a manager has taken in order to achieve their outperformance.

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Given that markets aggressively sold off in the fourth quarter of 2018, it comes as no surprise that the list isn’t a simple repeat of last year’s findings. But even though there are plenty of new faces, many of last year’s top names have made a reappearance. 

As Table 3 shows, nine funds feature in both this and last year’s analysis. They span asset classes and regions, and include UK equity fund Cavendish Aim, Axa’s Sterling Corporate Bond product, and mixed asset offerings from Jupiter’s Merlin range and Unicorn.

For those backing overlooked outperformers, it’s good news that so many funds have demonstrated consistency by racking up high information ratios versus peers. On top of that, six of the nine recurring names have achieved a higher score than last year.

Some of these, such as Legg Mason IF Martin Currie Emerging Markets, rank significantly higher on this metric than they did in our last analysis. Of the names that have appeared twice in a row, it’s only offerings from Barings, Fidelity and Unicorn that have seen their information ratios drop. That is despite information ratios having fallen more generally among the top names. 

Funds matching our criteria tended to achieve lower information ratios over the three-year period to April 2019 than the previous time period. The highest ratio comes in at 1.77, compared with an annualised reading of 1.9 for the Premier Diversified fund over three years to April 2018. The average information ratio has also fallen, from 1.28 to 1.

Why the drop off? It’s something that can probably be put down, at least in part, to markets: the severe sell-off that hit assets in the fourth quarter of 2018 may well have dented not just returns but also funds’ ability to outperform peers.

Failure to launch?

While funds retaining their places is a testament to these strategies’ consistency, from providers’ perspective their continued presence is a mixed blessing. It shows they have failed to turn the corner in terms of gathering assets.