Varied market conditions highlight winners and losers in the latest Crown rating rebalance

The latest rebalance shows small cap funds in multiple territories and technology focussed funds still struggling to replicate the gains generated during the Covid pandemic whilst strategic bond funds and some mixed asset funds have been able to outperform their benchmarks and demonstrate the value of active management in a high interest rate environment. These feature heavily in the funds jumping up the most places in terms of improved ratings.

These funds included: Schroder Sustainable Bond, BNY Mellon Global Dynamic Bond Income and Man GLG Strategic Bond.

The biggest fallers came from a variety of sectors but notably funds invested directly in the commodities sector fell 3 or 4 places in this rebalance including: Barings Global Agriculture, FP Foresight UK Infrastructure Income, Lazard Commodities and Pimco GIS Commodity Real Return.

Charles Younes, Research Manager at FE Investments, commented:

“What we see from the funds that did well in this most recent rebalance are that they had high exposure to alternatives and therefore benefitted from the diversification here during recent tumultuous markets.  From the equity funds whose ratings have changed significantly, we can also see that when market cycles move fast as they have done in the last three years, stock selection can fall in and out of favour quite quickly.”

5-Crown rated funds

Overall, 106 funds gained the 5-Crown rating during this latest rebalance, bringing the total number to 351. 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.

Fewer funds lost their 5-Crown rating during this rebalance however showing some returning stability after 3 years of significant market movements.

Sectors and groups

In sector terms, the winners came from the Strategic Bond and Infrastructure sectors with the IA Infrastructure sector having 6 out of 21 funds 5 Crown rated and the IA Sterling Strategic Bond sector 21 out of 77 closely followed by the IA Global Inflation Linked Bond with 3 out of 12 funds getting the highest accolade.

There were changes once again among the groups as well, with many of the best performing fund houses and asset managers in January’s rebalance dropping out of the top table. In a reversal of fortunes, GAM, Liontrust, Carmignac and Janus Henderson fell out of the table at this rebalance.

BNY Mellon lead the way in the table this time around with 12 of their 53 funds holding a 5-Crown rating. They are closely followed by Fidelity, who have maintained their position in second with 11 of their 85 funds and Royal London who have 10 from 46 funds.

Charles Younes added:

“This is the last rebalance that will take into account the extreme market conditions caused by the Covid pandemic. As the ratings consider three year performance this latest rebalance takes into account the Covid sell off, the pandemic rally of growth stocks and now a market rotation with a move in favour of value and a rising interest rate environment. For the next rebalancing we will lose that Covid sell off so managers will not be judged on such a variety of different market conditions. This is where the Crown rating really shows its value as it is a good assessment of managers skill rather than just favouring a particular investment style.”

*Percentages have been rounded up to the next whole number

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 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 has 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.