Funds employing a value-oriented investment style have demonstrated superior performance compared to their growth-focused counterparts in the recent rebalance conducted by FE fundinfo.
The latest Crowns rebalance – which takes place twice a year in January and July – revealed a noteworthy outperformance of value style funds across all equity markets. This contrasts significantly with growth-oriented funds, particularly those concentrated in technology investments, which exhibited comparatively weaker results.
Resilience has emerged as a key driver of financial markets in 2023. Value and cyclical managers tend to excel in such an environment because their portfolios are often composed of companies that thrive during periods of economic expansion. These managers strategically invest in undervalued assets and industries poised for growth, leveraging the global economy's resilience to enhance their performance.
In contrast, defensive growth-oriented managers, who typically invest in companies with consistent earnings regardless of economic conditions, typically underperform when economic conditions are better than expected. As a result, the resilience of the global economy plays a pivotal role in the outperformance of value and cyclical managers over their growth-focused peers.
5 Crown rated funds
Overall, 19 funds gained the 5-Crown rating during this latest rebalance, bringing the total number of 5-Crown rated funds to 361. 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 winner came from the Sterling Strategic Bond with 22 out of 77 (28.6%) 5 Crown rated. In continuously 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 Japan sector recorded 15 out of 65 funds (23.1%) 5 Crown rated; an improvement from six months earlier where it recorded 13 out of 58 funds (22.4%) 5 Crown rated.
The picture was similar for the Sterling Strategic Bond who were leading the way in July 2023 with 23 out of 77 (30%) 5 Crown rated while the other leader – the Infrastructure sector having six of 21 funds (29%) 5 Crown rated has slightly fallen away this time around, recording five in 23 funds being 5 Crown rated (21.7%).
There were, however, changes once again among the groups with some fund managers seeing some significant changes from the middle of 2023.
Carvetian Capital lost all six, 5 Crown rated funds, which saw them go to zero, while Quilter Investors, abrdn and Muzinich & Co all lost three, 5 Crown rated funds seeing them drop from 13 to 10, five to two and three to zero respectively.
Elsewhere, M&G and Canada Life gained three, 5 Crown ratings bringing their total up from nine to 12 and zero to three respectively.
Charles Younes, Deputy Chief Investment Officer, FE Investments, commented:
“Contrary to expectations one year ago, 2023 unfolded as a seamless extension of 2022, with inflation and central bank decisions emerging as pivotal influencers in financial markets.
While the trajectory of equity and bond markets shifted from negative to positive, the prevailing victors remained consistent – strategic bond managers, displaying adeptness in adjusting their interest rate sensitivity, and equity managers focused on value and cyclical assets.
Consequently, it comes as no surprise that our Crown ratings witnessed minimal alterations. While January 2023 marked a pivotal shift in leadership, January 2024 signals a continuation of the same trend.”
|
Group |
Number of funds |
Number of five Crown funds |
% of five Crown funds |
|
|
Schroders |
84 |
12 |
17% |
|
|
M&G UK |
45 |
12 |
27% |
|
|
Invesco |
45 |
11 |
24% |
|
|
Quilter Investors |
53 |
10 |
19% |
|
|
Royal London |
34 |
10 |
29% |
|
|
Scottish Widows |
42 |
9 |
21% |
|
|
BNY Mellon |
39 |
8 |
21% |
|
|
Jupiter Asset Management |
58 |
7 |
12% |
|
|
PIMCO Global Advisors |
42 |
6 |
14% |
|
|
Premier Miton |
37 |
6 |
16% |
|
|
True Potential Investments |
26 |
6 |
23% |
|
|
Fidelity |
60 |
5 |
8% |
|
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, Deputy Chief Investment Officer, 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.
