We examine how to assess the people steering your money
Thursday 19 Sep 2019 Author: James Crux

Choosing which funds to put in your portfolio is never easy. That’s why companies who help you invest your money come up with best buy or favourite funds lists.

And to help both you and those companies, others come up with systems for rating funds, based on how well they perform against others that do the same or a similar thing.

This can be very useful in helping to pick out a good fund.

But there’s another school of thought when it comes to ratings. Fund managers and their stock or bond picking abilities are possibly the key determining factor in why their funds either perform well or poorly. But like everyone else in the workplace, they don’t always stay with the same employer – and therefore same fund – for eternity.

So perhaps it’s worth following the manager and not the fund? That’s something that financial information company Citywire believes, arguing that a fund manager’s track record is the most important thing to consider when picking an active fund.

A-STAR RATED

Citywire tracks over 16,000 managers globally and looks at their three year rolling risk-adjusted performance across all the products the manager runs.

In order to be eligible for a rating, the manager must also run the funds in at least one of 270 Citywire sectors and operate in the 42 countries Citywire operates in as well. Updated on a monthly basis, there are four levels of rating:

Citywire AAA – The top 10% of outperformers are awarded AAA rating

Citywire AA – the next 20% of outperformers

Citywire A – a further 30% of outperformers

Citywire + – The final 40% of outperforming managers are rated Citywire +

Citywire says its ratings are a ‘totally objective, analytical and unbiased way to choose investments’. They track the manager, not the fund, examining how they’ve performed across all the funds they have run, and wherever they have run them, over the past three years.

Again, the methodology is purely quantitative – an objective and statistical way of showing the outperforming managers – and rewards managers for superior risk-adjusted returns. To qualify for a rating, a fund manager has to deliver positive risk-adjusted performance over a rolling 36 month period, averaged across  all the funds they run.

If a manager is AAA rated, they are in the top 2.5% of all the fund managers tracked globally. And to be rated at all by Citywire, no matter what the rating type, places a manager in the top 8% of all money managers globally.

Citywire rates all eligible managers across the whole of the market and no one pays to get rated.

TOP RATED MANAGERS

At the top of the list of the longest Citywire AAA-rated managers in the UK is Paul Jourdan, the co-founder of Amati Global Investors, famed for his stewardship of the TB Amati UK Smaller Companies (B2NG4R3) fund.

This fund has delivered a total return of 58.5% over those past three years, well above the sector average of 37.7% according to Citywire.

The fund has also performed strongly over five and 10 years, returning 102.3% and 443.4% respectively, compared to the peer group averages of 54.1% and 258.9%.

Investing in smaller companies on the UK stock market, Jourdan’s approach focuses on finding the hidden gems, but he also mixes recognisable names with lesser known companies.

For example, two of his best performing holdings have been mixer drinks group Fevertree Drinks (FEVR:AIM), and power switching technology developer XP Power (XPP).

TOP RANKED FEMALE

A well-known fund manager on these shores when it comes to bond investing, Paola Binns has built her reputation on taking advantage of anomalies in the market.

Binns runs the popular Royal London Sterling Credit (B8GJ8S05), which invests mainly in sterling denominated bonds issued by companies, called corporate bonds, as well as a small amount in UK gilts.

The fund has returned 36.7% over five years compared to the sector average of 28.2%, and over 10 years has delivered a total return of 132.1%, well ahead of the 94% delivered on average by the peer group.

Binns has long argued that the market does not price credit risk correctly and that rating agencies can often be inefficient. Based on her long-term track record, it’s hard to argue with that.

SCIENTIFIC APPROACH

By far the pick of the bunch when it comes to investing in biotech, according to Citywire’s ratings, David Pinniger has given investors a more than 50% better return over five years than his nearest competitor.

Pinniger’s Polar Capital Biotechnology (B427453), in five years to the end of July 2019, has returned 151.5%. Its closest rival over that timeframe is HBM Global Biotechnology, which has returned 96.8%, while the overall sector average is 86.6%.

A well-known fund manager in the healthcare sector, Pinniger has spent 19 years’ investing in biotech and pharmaceutical companies and covering the sector as an analyst.

While biotech isn’t for the faint hearted, Pinniger believes experienced managers can do well in the sector, and targets companies that have good brands and effective risk management. He also tries to take advantage of M&A in the sector.

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