21st February 2017 by Darius McDermott
Most of us have a favourite restaurant. You know, a place we like to go where the food is always good, the staff are friendly and we’re happy to recommend it to our friends. The key is consistency. If we went some nights and waited an hour only to get cold food – well, that restaurant would probably become less popular.
The same goes when it comes to choosing funds and, indeed, fund groups. Ideally, investors want to know that a fund group has delivered excellent returns, not just over the past year or the past couple of years, but over the long term.
So a couple of years ago, FundCalibre designed some research that would reveal exactly that: which fund groups were consistently outperforming their peers? We’ve just completed our Fund Management Equity Index for the third year running, and the results showcase a core selection of active fund management groups that are consistently strong.
Each year, our index looks at a rolling five-year period. It compares each group’s qualifying equity funds1 against their sector averages to measure outperformance and then collates results at the group level. So each annual index itself is a good medium-term gauge of performance, given the five-year time frame.
Then we compare the results to the previous index and the index before that to slowly build up a longer and longer term view. In 2017, our research highlighted that for the past three years, six fund groups have consistently appeared in the top ten. I think these warrant a mention and are Unicorn Asset Management, Old Mutual Global Investors, Baillie Gifford, SVM and T. Rowe Price.
I’m particularly pleased with the fact our results show a range of both boutique houses and large groups outperforming, as it suggests that good active management can be found across the industry.
For example, Unicorn has just four qualifying funds in the index, while this year’s winner, River and Mercantile, has five. These smaller groups can help investors to access areas of the market where specialist expertise is especially important. Elite Rated Unicorn UK Smaller Companies is one such fund. Its research team have years of experience in this space and, with their average five-year outperformance of the sector this year coming in at 32%2, you can see the value they add.
Meanwhile, 11 of the top 20 groups this year were larger and had 10 or more funds. Schroders came in 14th and had a whopping 43 funds analysed – 88% of these outperformed over the past five years. Impressively, the group outperformed across many different sectors and investing styles. For example, Elite Rated Schroder Recovery beat the IA UK All Companies sector by 70%, while Elite Rated Schroder US Mid Cap and Elite Rated Schroder Asian Income each beat their respective sectors by more than 20%3. Of course, it’s important to remember, all of this is based on past performance and it certainly doesn’t guarantee that all of Schroders funds are going to continue outperforming, nor by such large amounts.
Those groups that typically don’t fare so well, on the other hand, are the retail banks and groups that don’t specialise in active management. Santander, Halifax and HSBC, for example, have been in the bottom 15 fund groups of the index every year.
As a new investor who hasn’t got a lot of experience researching funds, I’m sure it can be tempting to go with these well-known brands that you may already even have a relationship with due to your banking. But investing is a different kettle of fish and I always highly recommend everyone does a good bit of homework before making investment choices.
Our Fund Management Equity Index provides a good place to start. You can view the full results on our website. Once you’re looking for specific fund ideas, you can also use our site to browse and read our research and views on Elite Rated funds.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.
1 Visit http://fundcalibre.com/fund-management-equity-index-2017-methodology for full methodology
2 FundCalibre Fund Management Equity Index 2017 full results table. All data from FE Analytics. All cumulative statistics % change bid to bid, net income reinvested, five years to 31/12/2016.
3 All data from FE Analytics. All cumulative statistics % change bid to bid, net income reinvested, five years to 31/12/2016.