There are more than 3,000 open-end funds available to UK investors, a further 300 investment trusts and more a 1,000 exchange-traded funds listed on the London Stock Exchange. Filtering through that lot to find an investment worthy of your portfolio can be overwhelming.
The Morningstar UK Fund Awards recognise those retail funds and fund groups that added the most value for investors within the context of their relevant peer group in 2013 and over longer time periods.
Morningstar selects the winners using a quantitative methodology with a qualitative overlay that considers the one-, three-, and five-year performance history of all eligible funds, and adjusts returns for risk using Morningstar Risk, a measure that imposes a higher penalty for downside variation in a fund’s return than it does for upside volatility.
“The Morningstar Risk measure is ideal for these awards as we created it specifically to help identify funds that manage downside risk better than their rivals,” said Christopher Traulsen, Morningstar’s director of fund research for EMEA.
“We believe this aligns better with investor concerns with respect to loss of capital and helps identify funds that can deliver a better investor experience.”
A selection of the winners of the Morningstar UK Fund Awards 2014 are found below.
Best UK Small-Cap Equity Fund
Schroder UK Dynamic Smaller Companies
Morningstar Analyst Rating of Bronze
The Schroder UK Dynamic Smaller Companies fund is managed by Paul Marriage, who originally joined Cazenove Capital, which was acquired by Schroders last year, in November 2005. The investment approach is purely focused on bottom-up analysis, seeking stocks that satisfy his P3M parameters: Product, Market, Margin, and Management. With this in mind, Marriage focuses on companies that offer differentiated products, are the market leader within niche markets, exhibit margin growth, and have a high-quality management team. He is an experienced investor who has delivered robust returns over time, and has demonstrated an ability to perform through various market cycles. During his tenure, the fund has significantly beaten both the Morningstar UK Small-Cap Equity category and its benchmark, the FTSE Small Cap ex IT Index. To protect investors, the investment house has recently restricted fund subscriptions.
Best UK Equity Income
Invesco Perpetual UK Strategic Income
The Invesco Perpetual UK Strategic Income fund has been managed by Mark Barnett since January 2006. He has more than 20 years of investment experience and has been with Invesco Perpetual since 1996. Barnett’s high-conviction investment process mixes a high-level macro overview with bottom-up stock-picking. During his tenure, the fund has returned 8.82% annualised, outperforming the Morningstar UK Equity Income category average by 2.32 percentage points per annum, with lower volatility relative to the category average.
Best Global Emerging Markets Equity Fund
First State Global Emerging Markets
Morningstar Analyst Rating of Gold
The First State team has delivered outstanding long-term returns for its investors, achieved through a well-resourced and stable team that focuses on preserving investors’ capital. This was exemplified during the depths of the credit crisis in 2008 when the fund lost 22.97% compared with its average peer, which lost 37.27%, and also in 2013 when the fund posted a slight positive return during a falling market. Moreover, the fund has ably participated in rallying markets as shown during 2009 and, more recently in 2012, when the fund returned 20.77% while its average peer delivered 11.98%. Over the five-year period ending 2013, the fund posted an annualised return of 17.27% versus its average peer return of 10.5%.
Best Europe Equity Fund
BlackRock Strategic Funds European Opportunities Extension
This fund is run by three co-managers: David Tovey, Zehrid Osmani, and Simon Hunter. Tovey has managed the fund since August 2007, although his experience at BlackRock stretches back to 1998. Osmani has 16 years of investment experience and has worked with team head Nigel Bolton for the last eight years, while Hunter’s experience has predominantly been in research. The managers use an extension strategy to maximise total returns, where in addition to having up to 100% of the assets exposed to equity securities via long positions, the managers also enter into synthetic short positions to achieve additional investment exposure. The proceeds from the synthetic short positions are then used to buy synthetic long positions. The managers applied their process skilfully in 2013, driving the fund to a top-percentile ranking within its Morningstar Europe Flex Cap Equity category and sealing the year with a 48.7% return. The fund’s performance in 2013 was a continuation of its staggering performance in previous years, as evident by its top-percentile ranking over three- and five-year periods.
Best Global Equity Fund
St James’s Place Global has produced consistently strong performance since Dan O'Keefe and David Samra of Artisan Partners took over management of the fund in October 2010. With a style that focuses on companies offering high returns on capital, sturdy balance sheets, and trading well below private market values, Samra has led the U.S.-domiciled Artisan International Value to exceptional results since 2002, earning the fund a Gold rating from Morningstar analysts. The trend has continued at the St James’s Place offering: over the three-year period to the end of 2013, the fund has outperformed its Morningstar Global Large-Cap Blend Equity category by 8.3 percentage points annualised. The fund protected shareholders well in 2011, producing a positive return of 1.4% while the category average returned a loss of more than 10%.
The fund also outperformed during the equity rally in both 2012 and 2013, beating the category average by 8.2 percentage points last year.
Best Corporate Bond Fund
Rathbone Ethical Bond Retail Income
The Rathbone Ethical Bond fund has been managed by Bryn Jones since November 2004. The fund aims to achieve a high level of yield, between 5 and 7%, through a high-conviction portfolio of ethically screened investment-grade bonds selected using a thematic approach. The fund has performed strongly, both in absolute terms and relative to peers, achieving first-quartile returns in the Morningstar Europe GBP Corporate Bond category over one-, three-, five-, and 10-year periods. A large allocation to financial bonds, and bank and insurance bonds in particular, combined with a bias towards BBB-rated bonds and an underweight duration position, were positive factors over the past five years during the liquidity-fuelled rally in credit assets and particularly strong returns from lower-rated financial bonds.
Best US Equity Fund
Old Mutual North American Equity
Morningstar Analyst Rating of Bronze
This is an excellent quantitatively driven fund overseen by lead manager Dr Ian Heslop. In keeping with most quantitative strategies, the fund has historically worked best during upward-trending, low-volatility markets, hence its outstanding performance in last year’s broad-based rally across the North American exchanges, when the fund returned 39%, a figure comfortably ahead of its index and peers. The team’s stock selection took advantage of renewed consumer optimism across the Atlantic as some of the biggest contributors to performance were online retailer Priceline and cosmetics company Nu Skin Enterprises.
