The likes of Aberdeen Emerging Markets, Invesco Perpetual Income and Jupiter European have all once again achieved the coveted five crown-rating, thanks to their stellar track record over a three year period, in terms of not only total return, but volatility, alpha generation, downside risk and consistency.
It is always wise to look for giants of the future when it comes to fund selection however, and there are a number of much smaller funds that are more than a match for their high-profile rivals.
With this in mind, FE Trustnet looks at some of the more obscure funds with less than £100m under management, but with the maximum number of crowns.
Bedlam Emerging Markets
The emerging markets sector is a tricky one to be in for investors and advisers at the moment, with the two biggest players in the UK – Aberdeen and First State – both closing a number of their top-rated vehicles due to concerns over size.
Many large fund groups are pushing hard to fill the void, though there are also some boutique houses that also stake a claim. One of these includes Bedlam, which runs a £4.4m emerging markets portfolio.
Manager Ian McCallum targets above-average returns with below-average volatility in much the same way as Aberdeen and First State. He has been successful in achieving this since taking over the fund in 2007, particularly so in the recent sell-off in the asset class.
Our data shows Bedlam Emerging Markets is up 23.67 per cent over three years, beating the IMA Global Emerging Markets sector average and MSCI EM index by around 20 percentage points.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The fund has also been significantly less volatile, with an annualised score of 13.17 per cent over the period, compared with 16.37 per cent from the IMA Global Emerging Markets sector and 16.42 per cent from the MSCI EM index.
The fund has significantly outperformed Aberdeen Emerging Markets with less volatility over this time-frame.
McCallum is currently overweight defensive sectors including consumer discretionary and healthcare, but underweight more cyclical areas including financials, which the manager has minimal exposure to.
He is also heavily overweight developed markets – especially North America – which allows him to get indirect exposure to emerging markets with superior corporate governance.
It is for this reason that the fund actually sits in the IMA Global sector, as this allows it to invest more than 20 per cent in companies domiciled outside of emerging markets.
In the latest note to investors, its managers said they had found plenty of value in emerging markets thanks to the recent sell-off.
"The extraordinarily favourable conditions for emerging markets, which have lasted nearly a decade, have lessened, yet to tar them all with the same brush is as naïve as it was to buy all their bonds," the team said.
"Economic stress tests in India, China, Indonesia and South Africa do look bad, but in contrast, Malaysia, Taiwan, Russia and Israel stand out on valuation grounds as well as growth in company revenues and profits."
McCallum is significantly underweight China and Latin America.
Bedlam Emerging Markets requires a minimum investment of £3,000 and is available via certain platforms. It has an unusual fee-structure, as the annual management charge (AMC) of 1.25 per cent is only paid if the fund achieves a quarterly absolute return of 1.25 per cent.
FE Trustnet will interview McCallum later on this week. If you have any questions for the manager, please leave them below or email us at editorial@financialexpress.net.
Threadneedle Pan European Equity Dividend
Along with the likes of Jupiter and BlackRock, Threadneedle is among the highest-rated European fund houses on the market.
The stellar performance of its large cap and small cap funds in particular has led to mass inflows of late and the group has stopped marketing a number of these – often a precursor to a soft-closure.
As of yet, the five crown-rated Threadneedle Pan European Equity Dividend fund, headed up by Nick Davis and Dan Ison, has yet to garner the same kind of interest, and at £28.1m, it is far more flexible than many of Threadneedle’s other offerings.
The team targets a growing income as well as capital growth, by investing in a portfolio of European stocks, including the UK. The UK currently has a 27 per cent weighting which is slightly less than the MSCI Europe index. Germany and Spain are also overweight positions.
Performance of fund, sector and index over 3yrs
Source: FE Analytics
The fund has beaten its sector average and benchmark over one, three and five years, with less volatility. It is currently yielding 3.5 per cent, one of the highest figures in the sector.
Davis and Ison invest predominantly in large caps, with Roche, GlaxoSmithKline and Deutsche Post all major holdings.
Threadneedle Pan European Equity Dividend requires a minimum investment of £3,000 and has ongoing charges of 1.76 per cent.
Old Mutual Managed
FE Alpha Manager Stuart Cowley is one of the best-known bond managers on the market, but few investors know that he also runs a multi-asset fund – Old Mutual Managed.
The five crown-rated portfolio is a fettered fund of funds, meaning that it invests in other collective vehicles run by Old Mutual. This process ensures that costs stay low – the ongoing charges figure (OCF) for the fund is 1.66 per cent.
Cowley only has 11 holdings at the moment, with Old Mutual UK Equity Income and Old Mutual Global Strategic Bond both featuring prominently.
Since taking over the fund in 2008, Cowley has consistently beaten his peer group. He has returned 43.18 per cent over three years, putting the fund in the top quartile of its IMA Mixed Investment 40%-85% Shares sector.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Old Mutual Managed is available across a number of platforms. Rob Gleeson’s FE Research team currently rates the fund highly, including it in the FE Select 100.