Fundsmith Equity, Hermes Global Emerging Markets, and Jupiter European are among the five best-performing over three years with top ratings, FE Alpha Manager and included on the FE Invest Approved List, according to research by FE Trustnet.
Of the thousands of funds in the IA universe just a handful hold the maximum five FE Crown rating, are managed by an FE Alpha Manager and are included on the FE Invest Approved List.
Indeed, these funds include a number of well-known strategies from a range of asset classes and sectors, as the below table shows.
Source: FE Analytics
Funds that have shown superior performance in terms of stockpicking, consistency and risk control during the past three years have a high FE Crown rating while FE Alpha Manager status reflects similarly high standards on an individual manager level. The FE Invest Approved List, meanwhile, includes funds held in the highest regard by FE analysts.
Below, FE Trustnet takes a closer look at the five best performing ‘flawless funds’ over three years.
Fundsmith Equity
The fund topping the performance table is the £13.8bn Fundsmith Equity fund overseen by Terry Smith, which has delivered a 72.50 per cent total return over three years.
Smith has managed the fund since launch in 2010 and takes a defensive approach to investing, looking for global companies in basic industries serving repeatable needs.
As a result of his investment philosophy, Smith has some industry biases such as consumer staples, manufacturers or medical device producers.
“The areas the fund has invested in have been in high demand since the crisis, which is why the fund has returned so much in absolute terms,” FE Invest analysts noted.
“In relative terms, though, it has still done a good job of generating higher returns and has proven to be a superior solution to funds with a similar investment philosophy.”
Performance of fund under Smith
Source: FE Analytics
“I can now trace back five years of market commentary that has warned that shares of the sort we invest in, our strategy and our fund would underperform,” Smith wrote earlier this year. “During that time the fund has risen in value by over 175 per cent.
“The fact that you would have foregone this gain if you had followed their advice will of course be forgotten by them if or when their predictions that our strategy will underperform the ‘value’ strategy of buying cyclicals, financials and assorted junk pays off for a period.”
Since launch, the fund has returned 258.31 per cent compared with a 99.61 per cent rise for its average IA Global sector peer and a 133.98 per cent gain for the MSCI World index.
Fundsmith Equity has an ongoing charges figure (OCF) of 1.05 per cent.
Hermes Global Emerging Markets
The next best performing over three years and meeting our criteria is Hermes Global Emerging Markets, managed by manager Gary Greenberg and generating a total return of 66.51 per cent during the period under review.
Greenberg is supported on the fund by deputy manager Kunjal Gala and a small team of senior analysts and portfolio managers.
The £2.9bn fund has a bias towards China – which represents more than 30 per cent of the portfolio. He is also overweight information technology stocks (34.4 per cent) with largest holdings including Tencent, Samsung, Alibaba and Taiwan Semiconductor Manufacturing. Other significant sector weightings include financials (26.3 per cent) and consumer discretionary (19.8 per cent).
Performance of fund under Greenberg
Source: FE Analytics
“We like the concentrated, benchmark-agnostic approach, which we think is vital to navigate the volatile emerging markets sector,” FE Invest analysts noted.
“The fund is a good option for those looking for selective exposure to a region with macroeconomic concerns but huge potential in certain stocks, countries and sectors.”
Under Greenberg, Hermes Global Emerging Markets has delivered an 88.81 per cent total return compared with a 38.82 per cent gain for its average peer in the IA Global Emerging Markets sector and a 41.05 per cent return for its MSCI Emerging Market index.
Hermes Global Emerging Markets has an OCF of 1.13 per cent.
Old Mutual UK Mid Cap
The third best performer fund ticking all FE boxes is the £3.4bn Old Mutual UK Mid Cap, run by FE Alpha Manager Richard Watts since December 2008. The fund has delivered a total return of 62.25 per cent over three years.
Watt hunts in the mid-cap space investing predominantly in FTSE 250 companies and those that have a market capitalisation consistent with inclusion in that index.
The long-term fund typically holds fewer than 60 stocks and has outperformed the benchmark consistently in recent years.
Current top holdings include online fashion retailer Boohoo, B2B media business Ascential, food and drink multinational SSP Group and equipment rental company Ashtead Group.
The Old Mutual UK Mid Cap fund is included on the FE Invest Approved List thanks to the analysts’ high regard for the group’s UK small- and mid-cap team, highlighting its collegial approach.
The FE Invest analysts noted Watts’ approach to investing, which as well as stock selection takes the wider economic environment into consideration.
The fund has comfortably outperformed the IA UK All Companies sector over one, three and five years, delivering a total return of 466.91 per cent since Watts took over.
Old Mutual UK Mid Cap has an OCF of 0.85 per cent.
Fidelity Global Special Situations
The next fund on the list is Jeremy Podger’s Fidelity Global Special Situations, which has delivered a total return of 56.08 per cent over three years.
Podger takes a five-year view of markets, seeking out companies with significant potential for re-rating and divides holdings into three segments: “corporate change”, “exceptional value” and “exceptional businesses”.
FE Invest analysts highlighted Podger’s ability to generate returns from different types of opportunities, which is “testament to the skill and experience he has gathered over a long career”.
The fund has been a top quartile performer over three and five years, delivering a total return of 145.63 per cent compared with a gain of 88.42 per cent for the average IA Global sector fund and a 103.44 per cent gain for the benchmark MSCI AC World index since Podger took over, as the above chart shows.
Performance of fund under Podger
Source: FE Analytics
Fidelity Global Special Situations has an OCF of 0.95 per cent.
Jupiter European
Lastly is Alexander Darwall’s Jupiter European, which has posted a total return of 54.55 per cent over three years.
Darwall – who has overseen the fund since 2001 – selects European companies with long-term growth potential regardless of the economic backdrop.
The fund’s biggest allocations are to industrials (26 per cent) healthcare (23.5 per cent) and consumer services (13.9 per cent) and its top holdings include German technology and financial services provider Wirecard, Danish pharmaceutical Novo Nordisk, analytics provider RELX and Amadeus IT Group.
“Darwall has built up an impressive track record in European equity investing, and this strategy and style of buying high-quality global companies has now weathered a number of market environments,” FE Invests analysts noted.
Over five years, the Jupiter European has delivered a 91.01 per cent return compared with a gain of 65.74 per cent for the IA Europe excluding UK sector and a 65.06 gain for the FTSE World Europe excluding UK benchmark.
Jupiter European has an OCF of 1.03 per cent