The best performing fund managers over the past three years
Our quarterly spring clean of the Fund Manager Premier League has resulted in two managers being booted out of the Europe ex UK and UK equity income sectors.
To replace them, Alister Hibbert, manager of BlackRock European Dynamic, joins the league with an outstanding run of first-quartile rankings over each of the past three years, and John McClure of Unicorn UK Income takes up the spot as top manager in the UK equity income sector.
The league showcases the most consistent and best-performing managers across 11 sectors. We want the managers in the first quartile of their sector over each of the past three years.
There are a few restrictions: we disqualify funds less than £10 million in size and those where the manager has been at the helm for less than three years.m Hibbert recently celebrated his three-year anniversary, as he became manager on 1 March 2008, so he has just managed to sneak in.
We also disqualify funds with a minimum investment of more than £30,000.
We update the league quarterly, and this time we're looking at fund performance to 1 March. Managers are shown the door when their funds fall into the third or fourth quartile over the most recent year.
The winners and losers
In the Europe ex UK sector, Rob Burnett, manager of the Neptune European Opportunities fund, is one of the league's longest-serving members; but his fund slipped to the third quartile over the past 12 months.
Burnett says he was cautious about shares exposed to emerging markets in the consumer discretionary sector during September and October last year. "We felt they were a little expensive and we were slightly early in this view by a few months," he explains. However, he says that from December the sector has underperformed, and "this strategy has worked reasonably well".
Replacing Burnett is BlackRock's Hibbert. His fund has returned 45.6% over the past three years, and is the only one in the league to have achieved three consecutive years of first-quartile returns. Its largest holding is in healthcare provider Novo-
Hibbert says he has uncovered decent value companies and growth-style firms that have helped him top the sector. "We've navigated the last few years reasonably well, as we can be flexible about what we invest in. In 2009, we had a value-style tilt, and found firms that were struggling with profits but had strong franchises and brands,' he says.
"In 2010, we had a growth tilt, and still do now where we believe operating profits will grow."
Last year, the fund was underweight in banks and overweight in luxury goods and industrials, which helped deliver good returns.
"2011 won't be that different to 2010," he adds. "We expect the global economy to grow by 4% in real terms this year; that's a healthy backdrop for countries. So we haven't changed the portfolio much: we're still overweight industrials and consumer discretionary and underweight defensives."
In light of the squeeze on the British public, Hibbert is cautious over stocks that have consumer exposure to the UK. He says he is more positive on north Europe than the US, UK and periphery Europe.
Over in the UK equity income sector, Francis Brooke's Trojan Income Fund has tumbled into the third quartile over the past year. The fund returned 14.1%, against a 17% return from the FTSE All-Share. Brooke was unavailable for comment on why the fund had dipped.
The top fund in the sector is JOHCM UK Equity Income. However it is soft closed, meaning new investment is discouraged, so is not suitable for the league. The second best is Elite Charteris Premium Income, but its manager only joined in November 2008, so it is also ruled out. So we accept the fund manager in third place in the UK equity income sector: John McClure, manager of Unicorn UK Income.
McClure has specialised in investing in UK smaller companies for more than 20 years, and has managed the Unicorn fund since launch in May 2004. Castings, an iron castings manufacturer, is the fund's largest holding at 6.2%.
The fund is allowed to invest in large companies, but currently only 4% is invested in the FTSE 100. McClure says: "Back in 2008 the portfolio was repositioned to take advantage of mid- and small-cap companies that were expected to come back into favour. We had no exposure to banks and oil stocks, but had exposure to international earners and UK exporters. These positions have helped deliver strong returns."
He names Castings as a top performer in the fund. "Demand for Castings" truck parts has increased. It supplies Skania and Volvo and other non-UK firms, so shouldn't be impacted by weak GDP growth in the UK. It has also got £10 million in the bank and is taking on four or five staff a week on average."
McClure adds that very few of the consumer shares in the fund are UK related, and "that's one of the reasons the fund has done so well".
In the last Premier League update, there was just one new arrival: L&G Dynamic Bond Trust's Richard Hodges. Although the fund has slipped into the second quartile of the strategic bond sector over the most recent year, performance is still robust and Hodges has even posted the top three-year return of all the league members: 52.6%.
In terms of the other bond sector – global bonds – GLG's Christophe Akel is also still in the league, with a top-quartile return. Indeed, over the past year he's third in the 40-strong sector.
The table below only shows one year of performance figures for the fund, because when SGAM was acquired by GLG in 2009, the fund changed its remit to exclude government bonds and was rebranded the GLG Global Corporate Bond fund. This change has now been updated by Lipper and only returns since the rebranding in 2009 are given for the fund.
The fund has its largest geographic exposure to Europe (41%) and its biggest credit quality exposure to BBB-rated bonds (68%).
Akel says corporate bonds are in very good shape from a balance sheet perspective and spreads remain above the long-term average. He adds: "However, our biggest concern remains interest rate moves, and as a result we will be hedging part of our exposure and looking to manage duration accordingly."
|Fund manager||Fund name||Sector||*£ 2011||*£ 2010||*£ 2009||*3-year return (£)|
|Richard Hodges||L&G Dynamic Bond Trust||£ Strategic bond||108.5||140.6||103.9||152.6|
|David Gait||First State Asia Pacific Sustainability||Asia Pacific ex Japan||118.8||160.0||74.7||136.4|
|Alister Hibbert||BlackRock European Dynamic||Europe ex UK||128.3||165.2||72.3||145.6|
|Christophe Akel||GLG Global Corporate Bind||Global bonds||107.0|
|Devan Kaloo||Aberdeen Emerging Markets||Global emerging mkts||116.8||180.0||71.8||144.5|
|Toby Ricketts||Margetts Greystone Global Growth||Global||114.5||139.5||73.9||113.4|
|Dean Cashman||M&G Japan||Japan||114.5||140.9||85.3||132.1|
|Gordon Grender||GAM North American Growth||North America||119.3||124.9||104.4||147.8|
|Margaret Lawson||SVM UK Growth||UK all companies||127.9||139.8||70.3||119.1|
|John McClure||Unicorn UK Income||UK equity income||140.3||166.4||66.3||147.3|
|Elaine Morgan||Aegon UK Smaller Companies||UK smaller companies||135.4||148.2||70.4||133.6|
* Value of £100 invested over one year to 1 March
Among UK-focused managers, Aegon UK Smaller Companies' Elaine Morgan and SVM UK Growth's Margaret Lawson have held on to their spots in the league.
This year has been kind to the SVM fund so far, as it has almost tripled in size. Assets under management have jumped from £14.1 million to £40.9 million, meaning the fund has introduced some new holdings, namely British Land, Capita, Pearson and ITV.
In February, ARM, Fresnillo, John Wood and Asos were the major outperformers for the fund. Lawson comments on gold producer Fresnillo: "The combination of world-class assets, future production growth and a healthy balance sheet means that we believe Fresnillo deserves to trade at a premium to its peer group. As the global economic outlook remains uncertain, investors will continue to look towards precious metal companies as both a safe haven and a store of value."
Meanwhile, longstanding premier league manager David Gait, of the First State Asia Pacific Sustainability fund, is still in the league with a top-quartile return over the past 12 months. His fund's exposure to Taiwanese, Indian and consumer staple companies has contributed to its stellar performance.
Gait looks for good corporate governance and sustainable themes, such as energy-efficient technology companies. Two-thirds of the largest 100 Indian companies are currently ruled out on either corporate governance, environmental or social concerns.
He comments: "It is now clear that most Asian countries will be unable to follow the same resource-intensive development path pursued by industrialised countries in the past. If everyone in Asia lived the same lifestyles as Europeans or North Americans, we would need at least three planets. Many Asian countries have now recognised this and are beginning to develop their own, more sustainable, development paths."
Themes for the fund this year include public transport, gas distribution and energy-efficiency technology. "Valuations also look particularly attractive for good-quality financial services companies in the region outside the most popular markets of China, India and Indonesia, such as banks in Korea and Taiwan," adds Gait.
The nuclear crisis in Japan hasn't affected the portfolio, as first, the fund doesn't invest in Japan, and second, Gait doesn't like investing in nuclear anyway as there are too many "unquantifiable long-term liabilities".
Dean Cashman, our premier league manager in the Japan sector and manager of M&G Japan, says the tragic events have not changed how he invests, although he admits that Japanese equities look even cheaper now. "Following the earthquake we witnessed a wholesale panic sell-off by the market with no regard to company fundamentals. Since then shares have rebounded but are still below pre-quake levels and still offer considerable value," he says.
In fact, more than 50% of Japanese companies are now trading below book value. Cashman maintains that "Japanese equities stand out as a significant investment opportunity".
This article was published in the May 2011 edition of Money Observer
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
Corporate bonds are one of the main ways companies can raise money (the other is by issuing shares) by borrowing from the markets at a fixed rate of interest (the reason why they are also known as “fixed-interest securities”), which is called the “coupon”, paid twice yearly. But the nominal value of the bond – usually £100 – can fluctuate depending on the fortunes of the company and also the economy. However it will repay the original amount on maturity.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.