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Channel: Jake Moeller – Lipper Alpha Insight

What the Experts Taught Us: Lipper Alpha Expert Forum 2016

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The Thomson Reuters Lipper Alpha Expert Forum in London has earned a reputation as one of the European mutual fund industry’s premier thought-leadership events.

Our eleventh annual event–held in London on November 16, 2016–was no exception, and we were proud to welcome some of the preeminent industry executives in Europe to share their views on key developments affecting the European mutual fund industry.

Once again we partnered with the Chartered Institute of Securities and Investment–the leading professional investment body in the U.K.–as our co-hosts, and a full house in the Thomson Reuters Auditorium ensured a lively debate.

The evolution of ethical investing to ESG and beyond

The morning’s first panel session was moderated by Lipper’s Head of EMEA Research, Detlef Glow, who welcomed Ryan Smith – Head of Corporate Governance; Kames Asset Management, Andrew Parry – Head of Equities; Hermes Investment Management; and Wolfgang Pinner – CIO, Responsible & Sustainable Investing, Raiffeisen Capital Management.

The panel was extremely optimistic about the continuing growth in popularity of environmental, social, and governance (ESG) investing–especially with “Millennial” investors, but it cautiously warned that fund groups need to “deliver ESG, rather than merely marketing it.”

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(L-R) Detlef Glow interviews  Wolfgang Pinner, Andrew Parry & Ryan Smith 

The panel argued that performance for funds with an ethical or ESG screen need not be compromised by portfolio restrictions, with a consensus that such criteria are actually very good for generating strong performance outcomes.

The conclusions were that the industry has developed substantially from the days of simple ethical screening, with engagement being much more thoroughly incorporated across fund groups’ investment processes.

Concepts such as “impact investing”–although often hard to define–are no longer nebulous concepts, and investors themselves are demanding ESG criteria-led investments.

The European flows environment

Detlef Glow outlined key patterns of flows into mutual funds in 2016. He noted that European fund net flows to the end of third quarter 2016 had seen bond funds, with over €60 billion, dominate. As confirmation of a “risk off” environment the second most popular category–with over €30 billion net–was money market funds. European equities, with over €10 billion of net outflows, suffered the most.

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Jake Moeller highlights UK fund concentration.

Jake Moeller, Head of Lipper U.K. & Ireland Research, examined some specific trends in the U.K., pointing out the ongoing popularity of absolute return-type products, which collected over £4 billion net year to date, despite having an average performance of only 1% over the same period.

He also highlighted the concentrated nature of the U.K. funds market, outlining that–of the £990 billion sitting in the 6,000 mutual funds domiciled in the U.K.–the 50 top funds contain nearly a quarter of these assets.

The passive ascendency

Detlef Glow moderated a panel session with Mark Fitzgerald – European Product Manager, Vanguard; Thomas Merz – Managing Director & Head of ETFs Europe, UBS; Michael Gruener – co-head of EMEA sales, iShares; and Eric Wiegand – ETP Strategist, db X-trackers.

The panel confirmed that ETF growth will continue and that both price compression and further innovation will characterize the next few years. Picking up on points raised in the ESG panel, there was discussion around the potential for ESG criteria to be incorporated into passive or rules-based structures. This would likely be a forthcoming innovation.

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(L-R) Detlef Glow interviews Mark Fitzgerald, Eric Weigand, Thomas Merz & Michael Gruener.

The active and passive debate was covered, with the panel arguing that if beta and then factors generate the bulk of returns, active managers may struggle to justify their costs in seeking alpha.

Some of the panellists were dismissive of the argument that some sectors (e.g., emerging markets) are more fruitful than exchange-traded funds (ETFs) for active managers.

Detlef highlighted data showing 2015 saw the highest net inflows into passive vehicles in Europe (about 30% of total net flows) in recent years. The panel agreed that this trend likely will persist.

2016 macro review and outlook for 2017

The final session saw Jake Moeller moderate the popular macroeconomic outlook session with Keith Wade – Chief Economist, Schroders; Simon Derrick, Chief Strategist at BNY Mellon; and Richard Dunbar – Investment Director – Aberdeen Asset Management.

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(L-R) Jake Moeller interviews Simon Derrick, Keith Wade & Richard Dunbar.

The “Brexit” vote and the U.S. presidential election outcome dominated the conversation, with the panel agreeing that since the China “wobble” of summer 2015, the market has been dominated by a number of unusually material macro events. The panel believed it is likely political risk will be more tightly priced in 2017 but that–against a backdrop of weak growth and real wages growth–political risks remain high.

The effectiveness of central bank policy was discussed, with some credit being given to the Bank of England, the European Central Bank, the Bank of Japan, and the U.S. Federal Reserve, despite the distortion across yield curves.

In conclusion, the panel slightly favored risk assets such as dividend-paying equities over bonds but believed the high-yield bond market will offer some opportunities in a “lower for longer” rate environment.

Same time next year

All the sessions experienced a high level of audience engagement, with lively questions and debate contributing to the success of the event. The three hours of Continuing Professional Development credit allocated to the event by CISI were well earned.

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A packed house engages in the debate.

A live “Twitter Wall” proved popular during the event, with considerable comment and photos being posted via #LAEF16. At one point, this hashtag was the third highest trending in the U.K.

We think it is a tribute to the reputation of Thomson Reuters Lipper that we are able to gather such an acclaimed list of panellists to this annual event. Our considerable gratitude is extended to all the panellists who generously provided their time and thought leadership.

It is vital to the industry that their experience and knowledge is shared.

We look forward to welcoming you all next year!


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Mutual Fund Concentration: Why We Need Boutique Funds

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Recently in London, Investment Week hosted its “Funds to Watch” conference showcasing mutual funds containing assets of less than £300 million.

Whilst strictly speaking not all the fund groups represented were boutique houses (a number of large fund groups were promoting some of their smaller, less well-known funds), there were a considerable number of new and innovative mutual fund offerings on display.

Tough to differentiate

The mutual fund industry in the U.K. is largely characterised by its homogeneity. Fund analysts, selectors, gatekeepers, and multi-managers are skilled and adept at highlighting the not-inconsiderable differences in style and factor biases, size, and composition, which all contribute to the myriad performance outcomes we see in our performance tables. To the average “mum and dad” investor, however, one managed fund is pretty much the same as another.

Brand matters

Just as with any product, brand matters. In the absence of any other information, brand is a dominant factor in choosing a mutual fund. Investors might know of M&G or Invesco Perpetual because they see them advertised on the side of a taxi. That makes a conversation between an intermediary and a client on fund choice much easier than it might be if the product were Manderine Gestion or SVM, for example.

The U.K. fund market is highly concentrated. According to Thomson Reuters Lipper data, there are some 6,000 funds domiciled here. That is a lot of funds. Consider that the U.S. mutual fund industry has only around 8,000 funds in an industry that is over three times larger than the entire European mutual fund industry.

Exhibit 1. Concentration of UK Domiciled Mutual Funds (as at September 30, 2016)

Source: Thomson Reuters Lipper, Lipper for Investment Management

The total assets under management (as at September 30, 2016) in U.K.-domiciled funds are around £990 billion. That too is a reasonable sum, but 25% of the total is contained in only 50 funds. That is quite an astonishing figure. “Blockbuster” funds such as Standard Life Investments GARs, M&G Optimal Income, or Invesco Perpetual High Income are household names to most of us, and there are another 200 U.K.-domiciled funds with assets in excess of £1 billion each.

Adverse affects of concentration

Concentration matters. Large funds take increasingly larger positions and hold more lines of stocks or bonds than smaller funds. That drives them closer to an index position, making sustainable alpha a more difficult proposition. Additionally, liquidity can also become an issue if, for example, a huge fund suddenly needs to liquidate an entire line of stock on the back of an adverse corporate event or in order to fund redemptions.

Good things in small packages

Small funds are attractive for many reasons. They are nimble, they can–especially in their formative years–outperform their benchmarks considerably, and they often seek investment opportunities that are ignored or overlooked by larger funds. They are a great tool for diversifying a portfolio that might contain an unintentional bias to, say, large-cap FTSE shares.

The barriers to entry for a boutique are considerable, but they need to be given a chance to thrive. Gatekeepers need to freshen up their approved lists of the same well-known names. Large platforms and providers should consider fund additions that, although they may carry some reputational risk, ultimately invigorate and refresh the gene pool for all investors.


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U.K. Fund Launches and the Future of Product Development

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In a sepia-tinted past, product development for fund houses must have been a reasonably straightforward affair: offer a flagship “plain-vanilla” equity or bond product and build a cautious or balanced mixed-asset product around that mainstay.

New Launches Down but Mixed Funds Up

Despite investors, advisors, and asset allocators becoming increasingly sophisticated, new fund launches in the U.K. for 2016 were down 55% from the corresponding number for 2006. Comparably, the market for new launches was less segmented: In 2006 new fund launches occurred in more than 50 Lipper Global Classifications, with 22% of those launches consisting of mixed-asset or target return-type products. In 2016 new fund launches covered only 31 Lipper Global Classifications, but 33% of those launches consisted of mixed-asset or targeted return vehicles.

Exhibit 1. Composition of New Fund Launches (Registered for Sale in UK) in 2016 – by Lipper Classification

Source: Thomson Reuters Lipper, Lipper for Investment Management

Fund houses must put considerable time, effort, and resources into building new products. Lead time for a new launch can be considerable–up to a year from conception. Even then, there are no guarantees that in an increasingly saturated and competitive market a fund will sell–especially without the often-prerequisite three-year track record.

Demographics driving design

This issue for fund managers must be further complicated by the evolution of the marketplace, driven materially by demographics–particularly in the lucrative and growing mixed-asset space. Consider this evolution: The first readily accessible mixed-asset funds were available via with-profit products, with a shift at the turn of this century toward funds of funds. These in turn evolved into more complex multi-asset funds after the great financial crisis. Today we are seeing the rise of diversified growth funds, diversified absolute funds, targeted return funds, and increasingly, target date or targeted volatility funds.

Crucially, it is demographics that have caused the over spill of institutional asset-liability type funds into the retail space. The provision of income, a key driver for institutional matching, is now considerably more important as “baby-boomers” retire en masse. Not only that, with the three different phases of retirement (high consumption, mid-phase, and high income demand), there are even more nuances for advisers to consider.

“Solutions” and income are key

It is not enough today that fund managers offer only a superior bond or equity product. Increasingly, they need to offer “solutions” for advisors rather than merely a vanilla product range. However, advisors who face ever-growing regulatory pressures still have to populate risk and asset-allocation profiles–often difficult with just a mixed-asset vehicle. The concept of outcomes based investment is the round hole with current product ranges a square peg into which it needs to fit.

Undoubtedly, the future of fund product development is going to change further. Today there are more moving parts to fund distribution than ever, but it appears the most durable trend is income. Although absolute return funds were the fund-flows darling of 2016, collecting some £7 billion of estimated net inflows, some less-than-stellar returns have challenged that love affair.

It is possible there will be a resurgence of multi-asset income-type funds, and there have been some strong recent additions to this stable that are designed to satisfy retiree demand.

The reality is the retail fund world is no longer a sepia-tinted one. Product development experts have their work cut out for them.

Monday Morning Memo: Active and Passive Fund Flows in Europe

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Although the active versus passive debate has been around virtually as long as mutual funds have existed, active fund houses in Europe have been subject to considerably more scrutiny over the last 12 months.

The recent interim FCA Asset Management Market Study in the U.K. highlighted some key points on the ability of the active fund industry to add value. Previously, a statement by the European Securities and Markets Authority highlighted the issue of “closet tracking,” which presented some active fund participants in an unflattering light.

The ongoing debate on the merits of active investing versus passive investing will undoubtedly fill many more pages of academic- and industry-related literature. However, two things are certain: Active fund managers have to prove their worth with repeatable out-performance, and investors are sovereign – they invest where they see the best value and results.

What do fund flows reveal?

Since 2004, European fund assets historically have been dominated by active funds. According to Thomson Reuters Lipper data, the average annual percentage of active fund assets under management (AUM) has been 92% of overall AUM.

Exhibit 1. Historical Assets Under Management of European Mutual Fund Market (€ billion)

AUM

Source: Thomson Reuters Lipper

However, this average has decreased materially since 2011, with passive investments constituting a higher percentage of AUM. For 2004, passive investments constituted only 5% of total European mutual fund AUM. For 2011, this figure had increased to 8%, for 2014, 10%, for 2016 passive investments constituted 12% of AUM.

The growth of passive investing can be seen clearly in the analysis of net flows, with 2016 proving to be the most fruitful year for passive product providers in Europe in 13 years, despite total net flows reducing from 2015.

Exhibit 2. Estimated Net Flows into European Mutual Fund Market

Source: Thomson Reuters Lipper

Source: Thomson Reuters Lipper

Are we at a turning point?

It is difficult to assess all the drivers behind the growth in passive investing. Relative performance is key as is cost, with investors being much more savvy at seeking a good deal. There has also been a considerable increase in the amount of exchange-traded fund (ETF) products and providers now available in the market.

The regulatory pronouncements mentioned above also provide a fertile backdrop for the passive fund industry in Europe but there are also a number of other factors (covered in some detail in Monday Morning Memo February 13, 2017), including asset allocation decisions, which may contribute to varying degrees.

Irrespective of the rationale, the last three years have undoubtedly been good ones for the passive fund industry in Europe. Indeed, 2016 represents the best year yet. Whether this is a structural trend is difficult to say, but the onus is definitely on active fund managers to respond to this challenge if they are to maintain their primacy in the industry.

Fixed Income Funds: Sailing Calmly Despite Headwinds

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Recently, Investment Week hosted its Market Focus 2017: Fixed Income fund buyers’ conference in London, exclusively showcasing a selection of bond funds. I expected this event might be a hard sell, with the U.S. ten-year Treasury reaching its 1.37% nadir last July, a brave new inflationary world pervading our geopolitics, and a good deal of central bank distortion.

Fund buyers appear calm

Surprisingly, the event (which, reflecting interest in the asset class, was extremely well attended) was characterised by a sense of calm–both among the buyers and the sellers. There was no talk of bubbles or mass sell-offs, and every presentation submitted compelling arguments that supported the asset class.

Exhibit 1. 20 Year History of 10 Year U.S. Treasuries (Yield Basis)

Source: Thomson Reuters Eikon.

Source: Thomson Reuters Eikon.

Flows into fixed income still robust

It’s fair enough to expect a certain amount of buoyancy for an asset class at a conference held in its honour, but it appears that European investors’ love affair with fixed income is far from over. Pan-European fund-flow data from Thomson Reuters Lipper reveal that global bond products were the most popular selling asset class for 2016, netting over €22 billion.

Indeed, of the ten top-selling fund sectors for 2016 bonds were represented in five of them, including emerging markets, global high yield, and global corporate–to the tune of some €70 billion.

Provisional data from the U.K. reveal that in the first two months of 2017 strategic bond funds and global bond funds are similarly proving popular, collecting nearly £1 billion net despite a small outflow for corporate bond funds.

Exhibit 2. European Fund Flows 2016 (€bn) – Ranked by Sector 

European Fund Industry Review 2016

Source: Thomson Reuters Lipper

Demand for yield can still be sated

Investor demand for yield is still a highly durable theme, and although the U.S. is tightening, “lower for longer” in the U.K. and Europe is still providing broad support. The average yield on Sterling high-yield bond funds is around 4.3%, which is undoubtedly attractive to many investors.

Furthermore, ratings migration within credit funds hasn’t materially increased in order to support yields. At the end of February 2017 the average exposure to BB-rated securities among Sterling high-yield funds was 39%, only a 5-percentage-point increase from 2012.

No sense of panic, but no clear outlook either

Unfortunately, there was no uniform outlook for bonds among the specialists at this fixed income conference, and I did not envy the asset allocators who had to go re-calibrate their bond and equity splits. Most of the fund managers agreed that the credit cycle was extended, but that it could be undone with geopolitical shocks.

Many were short duration and others were writing put options on their portfolios. Some believed that too much was being priced into the reflation story, some talked of stagflation, and others were concerned about U.S. interest rates and the appreciating dollar.

The beta play is over

There was, however, one theme that stood out on the day: the easy bond beta play is well and truly over.

For me at least, this was perhaps the most rewarding insight. For an asset class where many investors will have an itchy trigger finger, an active fund that is cherry picking in credit, avoiding huge duration calls and the crowded trades is probably a sensible place to sail if the weather becomes more inclement.

London Shines Bright: U.K. Lipper Fund Awards 2017

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The 27th annual U.K. Thomson Reuters Lipper Fund Awards event was held at the elegant Chartered Accountant’s Hall on March 30, 2017. A full house of 200 participants from the U.K. and international fund management industries created an exciting buzz ahead of the industry’s premier night of recognizing excellence in fund management.

The event was well followed on Twitter with many members of the audience sharing their views via the hashtag #LipperFundAwards.

Chartered Accountant’s Hall in London proved a popular venue. Photo: Thomson Reuters.

This year there was an emphasis on the history and importance of Lipper capabilities within the Thomson Reuters suite. A short video outlined the evolution of Lipper from its inception to the present day, enabling guests to better understand Lipper’s global reach within Thomson Reuters.

ESG – a valuable tool for active fund groups

Bob Jenkins discusses the importance of ESG investing. Photo: Thomson Reuters.

Bob Jenkins – Lipper’s Global Head of Research, provided a keynote presentation discussing the importance of Environmental, Social and Governance (ESG) investing as a force for good in the world of funds management. He outlined how embedding ESG into their processes, active fund groups can further add value to investors in the face of increasing competition from passive funds.

Great Ormond Street Hospital

Great Ormond Street Hospital (GOSH) is at the forefront of medical care for ill children. Every day, 260 children arrive, doctors battle the most complex illnesses, and the brightest minds come together to achieve pioneering medical breakthroughs.

Thomson Reuters is proud to support Great Ormond Street Hospital. Photo: Thomson Reuters.

Thomson Reuters is a proud supporter of GOSH and this extraordinary hospital has always depended on charitable support to give seriously ill children.

Audience members at this year’s U.K. Lipper Fund Awards provided generous support for GOSH throughout the evening which will be well utilised by this worthy cause.

The “opportunity cost” of passive

Jake Moeller, Head of Lipper U.K. and Ireland Research, and emcee for the evening, provided insight into the active funds industry; he put forward passionate advocacy for the active fund industry citing the opportunity cost investors can potentially suffer by eschewing an active strategy using performance data from Lipper for Investment Management.

Lipper’s Jake Moeller discusses the potential costs of ignoring active funds. Photo: Giles Kidd-May, Crux AM.

He also examined some of the popular misconceptions in the industry such as “closet tracking” which he revealed may not be as common as is often referred to in the market.

The Lipper Fund Awards methodology

Lipper Fund Awards are based on the Lipper Leader ratings for Consistent Return. The awards are calculated using a utility function based on the effective return over multiple non-overlapping periods: three-, five-, and ten-year horizons. The calculations over multiple periods ensure that all periods in which a fund underperforms the average of its peer group are identified.

In addition, Lipper uses a utility function based on behavioural finance theory to penalize periods of underperformance, with more significant weightings given to excess negative returns. This methodology ensures that the winners of the Lipper Fund Awards are funds that have provided superior consistency and relative risk-adjusted returns compared to a group of similar funds.

The winning mutual funds in the U.K.

Twenty single funds from the largest peer groups by assets under management in the U.K. fund universe were honoured for the three-year category during the ceremony.

UBS shone with two separate awards: UBS Global Emerging Markets Equity A Acc in the Equity Global Emerging Markets category and UBS (Lux) Eq S – Global High Dividend (USD) P-Acc in the Equity Global Income category.

A full house enjoys the 2017 UK Lipper Fund Awards. Photo: Thomson Reuters.

Marlborough was also well represented with MFM Techinvest Special Situations Fund winning the Equity UK SMIDs category and Marlborough European Multi-Cap winning in the Equity Europe ex UK category.

It was great to welcome regular visitor Prusik who once again collected the award in the Equity Asia Pacific Ex Japan category with Prusik Asian Equity Income 1 B USD. Courtiers made their second consecutive appearance at a Lipper Awards winning with Courtiers Total Return Growth Fund in the Mixed Asset GBP Flexible category.

A full list of winners can be found here.

The group awards

For the group awards a large group must have at least five equity, five bond, and three mixed-asset portfolios, and a small group must have at least three equity, three bond, and three mixed-asset portfolios.

Exhibit 1. Group award winners and commendations

Source: Thomson Reuters Lipper

It is great to see a number of names who are making a habit of regular visits to the the Lipper podium: T. Rowe Price, Courtiers, Nordea, Jyske Invest and Fidelity have all been winners in recent years and are continuing to set a high standard for others in the industry.

Thomson Reuters Lipper takes this opportunity to congratulate all the individual sector and group award winners. A full photo gallery of the event is available here and we look forward to seeing you all again for another huge night in 2018.

Active Funds, Scorecards and the Negative Narrative

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The S&P Dow Jones SPIVA Scorecards are out again. Bunker down the active fund groups, and brace yourselves for the rush of opprobrium you will undoubtedly endure. Be ready for the impending broadside fired by the anti-active brigade targeting your failed objectives and unjustified fee structures.

Active groups turn the other cheek

Indeed, the narrative in financial and social media since the scorecard came out has been unsurprisingly negative. Yet what will we hear from those who are most heinously indicted in this report? Not much, I suspect. There appears to be little appetite for active fund groups to advocate any collective discourse about the potential benefits they offer end investors.

I’ve never really understood this reticence to roll up their sleeves. Perhaps it is diplomacy, perception of collusion, fear of a bout of unfavourable markets, etc. The result, however, is that active fund proponents are increasingly portrayed as mere creatures of faith who in the face of “compelling” evidence waste their hard-earned fee budget on a discredited belief system.

Passive fund flows a larger slice of pie

When you consider European fund flows for 2016, it is clear investors are voting with their feet. According to Thomson Reuters Lipper data, 45% of net flows into mutual funds were into passive vehicles. For 2015 this was 19% and for 2014 only 8%. Thus when Franklin Templeton or Fidelity announce—as they have—a move into the exchange-traded fund market, it is potentially misconstrued as an ignominious retreat for active rather than the prudent business diversifier it simply is.

Exhibit 1. Estimated net flows into European mutual fund market (€ billion)

Source: Thomson Reuters Lipper.

Passive funds can mean lost opportunities 

The “opportunity cost” of passive investing should be a material consideration for all investors. For example, the best performing active fund over five years to the end of 2016 in the Lipper UK Equity classification outperformed the highest ranked broad-based tracker over the same period by over 110%. That’s considerable outperformance sacrificed to save 50 basis points in costs.

Exhibit 2. The best performing UK equity fund v the best performing broad based tracker in same sector (in GBP) over various time periods

Source: Thomson Reuters Lipper, Lipper for Investment Management.

Persistent outperformance is there to be found 

Choosing that winning active fund was clearly a good move in retrospect, but how do you identify a winner in advance? Rudimentary evidence of persistency can be readily found. Nearly 70% of UK Lipper Fund Award winners over three years for 2014 remained in the first or second quartile of their categories at the end of 2016 for the same period. In the UK Equity classification 62% of funds that had first- or second-quartile one-year performance at the end of 2011 were still there five years later.

Passive industry not to blame for anti-active sentiment

Today, I am considerably more circumspect about the active/passive debate. I’ve seen this late-cycle rush into market-capitalised indices before and know that the tide will turn. Commensurately, I’ve learnt more about the benefits the passive industry provides all investors and commend its innovation. The passive industry itself is not responsible for the pejorative tone that often pervades the debate.

The musings of the proselytising “true believer” are worth little. Active fund groups need to be more willing to provide substantive counterpoints to studies such as the SPIVA scorecards. Then we’d have a much more constructive, balanced, and—for all investors—considerably more valuable narrative to relay.

Mutual Fund Awards: How Valuable Are They For Investors?

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Usually designed to a high specification, fund group foyers often have on tasteful display the crystal fund awards the fund managers have collected over their years of operation. In addition to their sparkling aesthetic, these quiet sentinels stand as evidence of a fund group’s ability to add value to investors.

Fund awards recognise consistent outperformance

A considerable number of media organisations and data providers (including Thomson Reuters Lipper) host an annual fund awards event, and there are plenty of opportunities for a fund house to pick up these sought-after gongs. Categories and methodology behind the various awards differ, but past performance is usually a major consideration; a fund with a period of relative outperformance of its peers will often find itself as a contender.

What do awards mean to end investors?

It’s worth considering how important these awards are to the investors of winning funds and what they tell us, if anything, about the potential fortunes of the fund in the future. Certainly, fund awards are meaningful to fund groups themselves. Many individual fund managers proudly collect their trophy on the night, and groups subsequently promote their victory in marketing materials. Whether fund awards generically are of any use in assessing the enduring quality of an investment is more open to speculation.

Award winners and pedigree

In addition to other layers of due diligence, fund awards certainly offer an insight into the ability of a fund manager to add value to an investor. In the U.K., there are a number of generators of excellence over the years who are regularly picking up awards; Prusik Asian Equity Income, Henderson Preference & Bond, Russell Investments UK Long Dated Gilt, and Techinvest Special Situations are funds that spring readily to mind.

A considerable number of fund groups such as Fidelity, Kames, Columbia Threadneedle, and Schroders have consistently had the same fund appear as a candidate or winner over multiple discrete years.

Is there evidence of persistency?

It is evidence of this persistency of performance that is the value of a fund award. Nearly 70% of U.K. Lipper Fund Awards winners over three years for 2014 remained in the first or second quartile of their categories for the same period at the end of 2016.

Similarly, of the 2013 winners of the popular Investment Week Fund Manager of the Year Awards, which has a qualitative overlay (the Lipper Awards are based solely on a quantitative process), 71% of them were in the first or second quartile of their categories for three-year performance at the end of 2016.

Fund awards advantageous in a competitive market

It is unlikely any serious fund gatekeeper would confess to using a fund award as a metric for selection processes, but I maintain there are worse ways of assessing a potential investment in isolation. Past performance is an important component of fund assessment and is effectively encapsulated in a fund award. To otherwise uninformed investors, a fund award can be a proxy for at least some rudimentary performance analysis.

The worth of fund awards for active funds is further being inflated by the growth and sustained popularity of Exchange Traded Funds and other passive investments. For 2016, 24% of estimated net flows into pan-European-based mutual funds were into passive vehicles. For 2015, this was 32%. Compare this for example to 2004 when passive investments only constituted 7% of total net flows.

In a highly competitive fund market experiencing unprecedented consolidation, those glittering, silent sentinels standing proudly on display in fund group foyers may become increasingly valuable indeed.


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Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.


Exchange Traded Funds and the Market-Cap Weighted Cliff

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The first quarter of 2017 was a very good one overall for the pan-European funds market. Thomson Reuters Lipper data reveals nearly €170 billion of estimated net sales for the period for active, tracker and exchange traded funds (ETFs) combined.

This is 70% of total net sales for the whole of 2016 and suggests that in the absence of any market catastrophe, the industry could be on target for a record year of sales.

Exhibit 1. Pan European Mutual Fund Estimated Net Flows

Source: Thomson Reuters Lipper

Source: Thomson Reuters Lipper

The first quarter of 2017 also revealed that investors’ affection for passive investments remains strong with total estimated net sales for passive vehicles constituting 20% of all sales. Indeed, more recently in April 2017, six of the top ten best-selling funds were passive funds.

Passive funds and share registries

The popularity of passive investments can also be seen in the share registries of large cap companies around the globe.  Looking at the most recent fund shareholders report for the FTSE 100’s largest constituent – HSBC Plc, only four of the top 20 fund holders of the stock are traditional active fund managers with the other fund holders consisting of trackers/ ETFs (13 holders) or large pension funds ( 3 holders).

A similar picture is revealed for the U.S. market. For the S&P 500’s largest stock – Apple, tracker funds/ ETFs constitute 13 out of the top 20 fund holdings with 5 individual Vanguard trackers amongst those.

Exhibit 2. Fund Ownership Summary of HSBC

Source: Thomson Reuters Lipper

Source: Thomson Reuters Eikon

In Europe, the FTSE Europe ex UK’s largest stock Nestlé, also has concentrated fund holdings in passive vehicles but less so than the markets above. 12 of the top 20 largest holdings are either passive/ ETF or large pension funds.

It takes a professional stock analyst to say whether or not Apple at a PE of 18, Nestlé at 30 or HSBC at 320 represent good value for money or not but even for these highly liquid stocks, given the ongoing growth in passive investing, at some point, there is going to be a surfeit of investors buying large cap stocks at any price. These may not possibly be the most prudent purchases as we enter the later stages of the economic cycle.

How to avoid the passive herd?

Active funds are a solution for those who are in anyway concerned about market herding and certainly one that I would strongly advocate. However, even for the most diehard passive investors there are an increasing range of solutions. The rise of “smart beta”, factor and multi-factor investing has really taken hold in Europe. At the end of 2011, there were 27 factor-based ETFs with a comparatively paltry €248 million of assets under management. At the end of April 2017, there are over 260 smart beta products containing some €1.7 billion of assets.

The concept of “diversifying” beta exposure has been a staple of institutional investors for many years. Given the rising tide of asset flows and the increasing share of this into passive products, this should be something that retail passive investors become familiar with lest like lemmings they run over the market cap weighted cliff.

Mutual Funds: How Much Wisdom is There in the Crowd?

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The “wisdom of the crowd” might for some be a reassuring phenomenon that can be readily applied to mutual fund investing. There is some sense to this; most investors are not fund experts, so a large and popular fund (in the absence of any other information about it) has probably had its tyres kicked enough times to act as some type of warranty.

Why do investors flock to the same funds?

There are many reasons for a fund or a fund house to be popular. Brand recognition, the effectiveness of its sales team, and its fund range are key as is availability on platforms and, unsurprisingly, historical performance. However, it is also true that many approved lists and guided architecture platforms have a very similar feel about them. Clearly, there are a number of the same funds that are appealing for a large number of gatekeepers—so those “tyres” have probably been diligently researched.

Exhibit 1. The Concentration of the U.K. Mutual Funds Market

Source: Thomson Reuters Lipper. Lipper for Investment Management.

Source: Thomson Reuters Lipper. Lipper for Investment Management.

For better or worse and likely for some of the reasons above, there is a high degree of investor concentration across funds in the U.K. Because of the vagaries of fund passports and domiciles, it is difficult to summarise regional fund markets precisely, but Thomson Reuters Lipper data suggest the U.K. fund “market” consists of some 3,800 funds (if you include closed funds with remaining assets), containing around £1.2 trillion of assets (as of April 30, 2017).

Considering these aggregated totals, concentration is clearly revealed. The largest 30 funds contain a fifth of the U.K.’s assets under management. Ranking all of these funds by April 2017 assets under management, 50% of the total U.K. asset base comprises only around 170 funds.

How have popular mutual funds performed?

The debate on the merits or otherwise of “blockbuster” funds is fodder for another article, but it is undeniable that the likes of SLI Gars, M&G Optimal Income, Invesco Perpetual High Income, Newton Real Return, and Woodford Equity Income have become names familiar to anybody in financial services.

We can take a snapshot of how the more popular funds are performing by considering the monthly rolling one-year performance deciles over five years (to month-end May 2017) and take the average of these to “score” each fund (1 is an excellent first decile average , 10 is a poor tenth decile average).

Of the 30 top funds by AUM in the U.K., 5 don’t have the requisite performance to score (although what data they do have scores them reasonably well), 7 are index funds (none of which scores above 5), and only 3 of those funds remaining score 4 or higher. This suggests that the recent performance of the most popular funds in the U.K. currently may not justify their investor commitment.

Safety in numbers? Not always

Such analysis has considerable limitations (individual investor experience differs according to entry point), but it certainly supports the more rigorous studies of fund size, which suggests that—for mutual funds at least—the gems may not always lie where the crowds are headed.

Thomson Reuters Lipper European Fund Selectors Forum 2017: Facing Future Challenges

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The third annual Thomson Reuters Lipper – European Fund Selectors Forum was held at the Thomson Reuters Auditorium, Canary Wharf on July 11, 2017.

Mutual fund research and selection is a crucial component of the investment and financial planning value chain. It is also a field increasingly under scrutiny by regulators, the press, and investors themselves.

George Littlejohn. Director at CISI welcomes members.

George Littlejohn – Director at CISI, welcomes members. Photo: Thomson Reuters.

In this environment, Lipper was again pleased to host a highly relevant forum that considered the challenges faced by the fund selection industry in 2017 and beyond. We were again proud to collaborate with the Chartered Institute of Securities and Investment (CISI).

An audience of around 140-drawn from private wealth, IFAs, mutual fund managers, fund gatekeepers, platform providers, investors and journalists participated in an informative and entertaining three-hour session of panels and presentations bringing together some of the industry’s most respected fund-selection practitioners in the U.K.

Presentation 1: fund flow-patterns in Europe

Lipper’s Head of EMEA Research, Detlef Glow, outlined current investor appetite by examining trends in pan-European fund flows. He revealed that the mutual fund market in general is in, good health with a milestone of over €10 trillion of total assets under management in Europe being reached in Q1 2017. He also noted that 2017 is on track to be a bumper year for European net sales, with the figure to the end of May 2017 of some €300 billion already surpassing the entire amount for 2016.

Head of Lipper EMEA Research, Detlef Glow outlines European Fund AUM

Head of Lipper EMEA Research, Detlef Glow outlines European Fund AUM. Photo: Thomson Reuters.

General trend towards risk aversion

Mr. Glow revealed an ongoing trend of risk aversion among European investors, with the most popular asset classes in 2017 being bond and money market funds, which have had nearly €200 billion of net inflows for the year to date. U.S.equities funds, with net outflows of over €5 billion, has fared most poorly to the end of May 2017.

Passive investments remain popular in Europe

ETFs and tracker funds which now constitute a total of 12% of the entire pan-European funds asset base, have continued to see strong net inflows of nearly 20% of the total fund flows year to date.  That is double the ten-year average of annual total passive flows.

Fund concentration in U.K. is marked

Jake Moeller, Head of Lipper U.K. and Ireland Research, also highlighted the fund concentration in the U.K.; the £1.2 trillion fund market, despite consisting of some 3,800 mutual funds, holds nearly 50% of its assets in only around 170 funds.

Panel 1: The “Art and Science” of fund selection

Jake Moeller presided over the first panel session, with panellists Victoria Hasler from Square Mile ResearchMona Shah from Rathbones, and Dr Nisha Long from Citywire.

Consistency a major criterion for fund selectors

Dr. Long emphasised the importance of consistent medium-term risk-adjusted performance, but she emphasised that it is important to monitor this on a rolling monthly basis to seek aberrations. Ms. Hasler referred to “confidence of outcome,” where Square Mile seeks to select fund managers who consistently stick to their defined style. Ms.Shah similarly showed a preference for consistent style bias, pointing out that “underperformance doesn’t always reflect lack of skill”, and referring also to strength in governance and resourcing.

<em>The Art &amp; Science of Fund Selection (L-R) Jake Moeller, Dr Nisha Long, Mona Shah and Victoria Hasler</em>

The Art & Science of Fund Selection (L-R) Jake Moeller, Dr Nisha Long, Mona Shah and Victoria Hasler. Photo: Thomson Reuters.

Fund concentration mitigated by boutiques

On fund concentration in the U.K., the panel recognised that it is not unusual for approved or buy lists to have commonality. Dr. Long believes that large funds must be judged on their ability to add alpha rather than on popularity alone.

Ms Hasler emphasised the opportunities that exist in the boutique fund space to differentiate, while Ms. Shah also pointed out that many good fund managers may be off radar in standard screening processes.

Closet trackers may not be a major concern

Closet trackers and ETFs were discussed in some detail. All panellists recognised that growth in passive investing will keep active fund managers “on their toes.”  Ms. Shah believes that the popularity of passive investing will weed out “closet trackers” who will not be able to hide as fee transparency increases. She also reminded investors of the importance of understanding complex ETF activities such as securities lending. Ms. Hasler pointed out the importance of large scale for ETFs in contrast to active funds.

Panel 2: portfolio construction and the macro environment

Founding editor of Investment Week, Lawrence Gosling moderated Peter Elston, Chief Investment Officer of Seneca Investment Management; James Klempster, Investment Director of Momentum; and David Coombs , Investment Manager at Rathbones.

Avoiding the herd is a popular strategy

On portfolio construction, Mr. Coombs observed that key to risk control is to constantly trying to anticipate “what can go wrong” and to avoid herd consensus by not absorbing too many “expert” opinions. Mr. Klempster highlighted the importance of outcome-based investing but similarly stressed avoiding “a weighted average of consensus.” Mr. Elston highlighted Seneca’s preference to seek fund opportunities in global equities while avoiding exposure to emerging markets.

Portfolio Construction (L-R): Lawrence Gosling, David Coombs, James Klempster, Peter Eslton

Portfolio Construction (L-R): Lawrence Gosling, David Coombs, James Klempster, Peter Eslton. Photo: Thomson Reuters.

Risk and liquidity need to be carefully considered

Some areas of contention arose for this interesting panel around the examination of income, liquidity, and the price of risk, with all three panellists referring to lessons learned from the global financial crisis. Mr Coombs stated that income-generating assets not correctly priced off gilts could lead to false conclusions about liquidity.

Insurance may be prudent

Mr. Klempster also referred to a potentially complacent market (measured by a low VIX), the need for puts, and concerns of “lobster pot” investments.

Mr. Elston, citing current bond yields, pointed out that assets with low volatility still carry a risk of loss and that he prefers seeking yield from REITs and alternative sectors such as infrastructure.

Panel 3: future trends in fund selection

Mr. Gosling also moderated the final panel, which examin future trends in fund selection, with Albert Reiter- founder and CEO of e-fundresearch.com Data GmbH and investRFP.com; Rob Sanders, co-founder, DOOR Ventures; and Andrew MacFarlane, Investment Director, FUNDHOUSE.

Technology is a facilitator rather than pure disrupter

The view of this panel was that—far from being made redundant—the future of the fund selection industry is assured but with changes as to how it is conducted. Mr. Reiter argued that standardisation of the inputs into decision making processes is key. Efficiency and time savings made by standard approaches to fund research methodology will allow fund selectors more time to make improved qualitative decisions.

Future Trends in Fund Selection: (L-R) Albert Reiter, Andrew MacFarlane, Lawrence Gosling, Rob Sanders. Photo: Thomson Reuters.

Fund ratings can have a different model

Andrew MacFarlane outlined how FUNDHOUSE is disrupting the traditional fund-rating model with a unique approach to fees and how moving away from a “pay to play” model increases the perceived objectivity of fund ratings generally.

Fund managers also benefit from new systems

Mr. Sanders confirmed that DOOR is not seeking to be disruptive to the fund selection industry, rather to create a more efficient market for time-consuming due-diligence and research documentation. He outlined that fund groups as well as fund selectors were being swamped with time-consuming and non-standard requests for information and that groups such as DOOR will be key to providing better quality and more consistent information to the markets.

An audience engaged

Audience participation at the third annual Fund Selectors Forum was exceptionally high, with some particularly passionate points of view being raised throughout the event. At the start of the Forum audience members were encouraged to engage this event via social media, and #LipperFSF17 garnered considerable commentary.

Audience participation was live and via a Twitter Feed.

The Forum was also attended by a number of trade journalists and some of the output can be found here.

The issues raised in this year’s Fund Selectors Forum will no doubt continue to be discussed. Since 2017 looks to be a material year for fund selectors from both a regulatory and market perspective, Thomson Reuters Lipper and the CISI have demonstrated the importance of facilitating such crucial debates.

We look forward to welcoming you again next year.

 


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

The Future of Fund Selection Remains Bright

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Is the fund research and selection industry–as many of the commentariat would have you believe–in a state of existential crisis? The beam of light that initially illuminated the U.K. financial services value-chain under RDR reforms has focused more intensely, with recent high-profile regulatory initiatives, on the role of fund selectors.

I contend that the future of fund selection is assured and as important as ever. Far from being threatened by robo-advice, passive funds, or regulatory scrutiny, fund selectors today are well placed to secure themselves as valued “cleaners” of the increasingly dynamic Augean fund stable.

A buoyant funds industry is supportive

We should consider the funds industry more widely. Far from being in a state of atrophy, the pan-European funds market is in robust health. Thomson Reuters Lipper Q2 data reveal that assets under management in Europe stood at €10 trillion at the end of June 2017.

Exhibit 1. AUM growth of Pan-European Funds Market by Product Type (€ Million)

Source: Thomson Reuters Lipper

Source: Thomson Reuters Lipper

The U.K. alone had over a tenth of those assets. Pan-European fund inflows over the year-to-date period totalled €363 billion. There were some 12,000 cross-border funds a U.K. investor could potentially access. Who wouldn’t need help sorting out the wheat from all that chaff?

Who will police “closet trackers” and other scandals?

I do not share the somewhat sceptical views of many active fund critics. Despite what many see as a relapse to old ways in the form of “closet tracking,” I believe most fund manager groups genuinely hold their clients’ best interests at heart. Furthermore, which fund managers really believe they can pull the wool over the eyes of any halfway decent fund selector on active share and tracking error?

The rise of passives equals opportunity, not threat.

The rise of passive funds and ETFs is also seen by most fund researchers as an opportunity rather than a threat. Assets held by the European ETF industry stood at €578 billion at the end of June 2017, up 12% from the end of 2016.

Exhibit 2. Pan-European Estimated Net Flows by Product Category (€ Million)

Selection

Source: Thomson Reuters Lipper

Far from being a set-and-forget investment, there is much to consider in regard to ETFs. Scalability, securities lending policies, tracking error, cost and in an increasingly saturated market, corporate takeovers, are all complex moving parts of an investment many mistakenly see as simple and transparent.

The response of fund selectors is proactive

At the recent annual Lipper European Fund Selectors’ Forum in London, I was pleased to witness the response of some of the industry’s most high-profile fund selectors to current challenges: Technology is not disruptive; it allows more time for deeper qualitative research. Regulation is welcome and, to the extent that fund selection isn’t a homogeneous industry, poses more difficulty for regulators themselves. An increasing passive market requires the attention of fund selectors to reveal its particular vagaries. Fund selectors are now prepared to provide evidence of the value they add to their unique client bases.

For end investors, the critical layer of additional due-diligence fund selectors provide should be apparent. However, just as a repentant gambler who never quite shakes off the ignominy of past misdeeds, the mutual funds industry too is a major beneficiary of their ongoing vigilance.


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

Ten years since the GFC–a Happy Anniversary for Bond Funds?

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The ten-year anniversary of the start of the Global Financial Crisis (GFC) has passed with less fanfare than one might expect. That is understandable; to this very day we are feeling the repercussions of that tumultuous event. For those of us caught up in that storm the anniversary evokes mainly unpleasant memories.

Bond funds were hit hard in 2008…

As we deal with ongoing central bank distortion and “lower for longer” interest rates, direct results of the GFC, it’s worth reflecting on the impact it had—and continues to have—on bond funds in the U.K. and Europe.

To contextualise this, we can examine historical fund flows. According to Thomson Reuters Lipper data, pan-European bond funds had haemorrhaged €500 billion by the end of 2008. It wasn’t until the end of 2013 that those outflows were recouped.

But have rebounded strongly

Talk of a “bond bubble” has been floating around for the last few years as the credit cycle has been fuelled by low debt-funding rates and insatiable investor appetite for income. Indeed, bond funds have been pan-Europe’s top-selling asset class for three of the last five years. Year-to-date as of June 30, 2017, net inflows of €161 billion suggest that in the absence of any major market shock, we could see the best year for the asset class in the ten years since the GFC.

Exhibit 1. Pan-European Mutual Fund Flows by Asset Class 2004-1H 2017 (in Euro)

Thomson Reuters Lipper

Source: Thomson Reuters Lipper.

Should investors be concerned? The Lipper Global Bond GBP Corporate sector has returned a healthy 65% for the period from the start of 2007 to the end of 1H2017 (U.K. equities were up 83% and cash was up 25% by comparison). Recent returns are still buoyant (+2.6% for 1H2017), and there is little sense of impending doom by bond fund managers–although most recognise the easy-beta play has long sailed.

Bond managers have learnt crucial lessons from the GFC

Before the GFC the rules of risk premia for assets above cash were inviolate. That confidence ended after 2008 when even many investment-grade bonds couldn’t be marked to market. Since then, the industry has paid a lot more attention to the vagaries of the bond market and how they affect bond funds.

Bond fund managers have learnt a lot of lessons; a better understanding of credit ratings and the importance of covenants in high-yield and loans are examples. Similarly, managers have not succumbed to the siren call of increasing credit risk to boost yield– in the flexible IA UK Strategic Bond sector the average BBB-rated exposure in 2007 was only 13.2%; today it is 26.6%. Fund gatekeepers and selectors too are much more diligent about fixed income fund composition, and there is considerably more forensic analysis of bond funds than there was in 2006.

Due-diligence on bond funds improved but beware passive money

Such improved analysis and learnt lessons augur well. Bond funds may remain in calm waters for a while longer, but there is certainly a sea change coming for rates and central bank activity. Another cloud is passive money. Flows into pan-European bond ETFs are growing considerably; for 1H2017 they constituted 10% of all bond fund flows.

10 years on from the GFC, it is arguably a happy anniversary for a recovered and robust bond-fund market. However, in current conditions, I for one would prefer an active fund captain in charge of the bond ship.

In a Dynamic World, are Mutual Funds Becoming too Complex?

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Our financial services industry is to be commended for its ability to evolve and adapt. It is dynamic, innovative, and even exciting. Ongoing regulatory initiatives after the Global Financial Crisis have greatly improved the investment product-delivery chain, the quality of investor advice and product understanding has risen considerably and with an increasingly complex dynamic, fund managers are rising to the demands of transparency.

Do retail clients need institutional-type products?

I often wonder, though, if we are beginning to over-egg the pudding. Recently, I attended a fund-buyer conference where a fund on display was so complex that I was relieved to discover its structure and process had confounded not only me but a considerable number of the delegates.

Complexity in mutual funds isn’t new, but with the commensurate rise in intermediary understanding the seepage of funds primarily designed for the institutional domain into the retail space is common. Investors are seemingly becoming an army of asset-liability matchers and “life-stylers.” As a result product objectives are often deliberately vague, and industry and data classification schemes are battling to maintain meaningful like-for-like peer comparisons.

Products in “plain-vanilla” classifications are decreasing

Thomson Reuters Lipper data reveal that of the non-institutional funds launched in the U.K. so far in 2017, 8% are in Lipper’s Alternatives classifications. This figure was only 3% for 2012. Similarly, fund launches into the Mixed-Asset GBP Balanced classification have fallen from 10% to 5% over the same period. There have also been other patterns developing, such as the rise of funds within flexible, specialist, and unclassified sectors at the expense of funds classified in traditional “plain-vanilla” peer groups.

It is perhaps in the recent popularity of absolute-return vehicles that we see the largest array of complexity and diversity. Within the Investment Association’s broad TAR classification for example there are products from 19 different Lipper classifications drawn from currency funds, alternative equity market-neutral funds, and global macro-type funds, to name a few.

There are certain influences that demand more complex solutions, and the imminent retirement boom may be one of those. However, investors have always been retiring at some point. It’s not as if the retirement “glide path” is a new concept that cannot be accommodated with relatively simply designed products.

Does additional fund complexity bring better performance outcomes?

There is no guarantee that additional complexity brings favourable outperformance and volatility outcomes. For 2016 the average return on IA TAR funds was 1.9%, with a standard deviation of 0.5. Lipper’s Mixed-Asset Conservative GBP funds, by comparison, returned 8.6% with a standard deviation of 1.2. You try working out what is the optimal risk/ return trade off for that example. One thing is certain, additional complexity can potentially lead to an investor’s misunderstanding of what a product is trying to achieve.

Where additional flexibility gives a fund manager a better set of tools to generate returns, we have beneficial evolution. Where additional complexity for its own sake becomes a marketing gimmick or an attempt to dazzle fund selectors or investors, it’s probably over-egging the pudding.

Seeking Expert Advice: Lipper Alpha Expert Forum 2017 Review

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The twelfth annual Thomson Reuters Lipper Alpha Expert Forum was held in London on November 7, 2017 and maintained its reputation as one of the European mutual fund industry’s premier thought-leadership events.

We welcomed some of the preeminent fund industry executives in Europe to share their views on key developments and challenges facing the industry today.

Once again we partnered with the Chartered Institute of Securities and Investment–the leading professional investment body in the U.K.–as our co-hosts, and a full house in the Thomson Reuters Auditorium ensured a lively debate.

The evolution of ethical investing to ESG and beyond

The morning’s first panel session was moderated by Investment Week’s founding editor, Lawrence Gosling, who welcomed Andrew Parry–Head of Sustainable Investing, Hermes Investment Management; Chris Welsford–IFA and Managing Director of Ayres Punchard Investment Management Limited; and Trevor Allen–Product Manager, Risk and Performance Division, BNP Paribas.

[L-R] Lawrence Gosling, Trevor Allen, Chris Welsford, Andrew Parry

[L-R] Lawrence Gosling, Trevor Allen, Chris Welsford, Andrew Parry. Photo Thomson Reuters.

The panel discussed the increasing influence of environmental, social and governance (ESG) criteria into mainstream investing, with Mr. Parry noting that poor governance is not only an investor threat, but could “come back to bite companies.”

Mr Allen noted that shareholder rights are an increasingly key component for ESG outcomes while Mr. Welsford warned that shareholder engagement may not always be based on ESG criteria and maintained the importance of considering ethics independently of broader ESG inputs. Litigation, too, was mentioned as a potential means of engagement.

The panel noted that ESG can no longer simply be used as a marketing tool. Investors and fund selectors are increasingly prepared to hold fund managers to account on actionable ESG outcomes recognising that ESG screens consistently improve performance outcomes.

The European flows environment

Detlef Glow, Head of Lipper EMEA Research, outlined key patterns of flows into mutual funds in 2017. He noted that European fund net flows of over €600 billion to the end of Q3 2017 were on track to set a new annual record, with total assets under management in Europe passing the €10-trillion mark for the first time.

Detlef Glow outlines European Fund Flows

Detlef Glow outlines European Fund Flows. Photo Jake Moeller.

Mr Glow noted the popularity of global equity funds which have collected over €60 billion of net inflows, reflecting investor appetite for regional diversification. He also noted that flows and AUM are both dominated by active funds, despite the perception the market is more disposed to cheaper passive products. Approximately 14% of total net flows for Q3 were into passive vehicles.

It was also noted that the UK remained the major individual fund market in the Europe with 20% of total assets. This was despite potential Brexit headwinds and the popularity of other fund domiciles.

The passive ascendancy; the rise of rules

Detlef Glow also moderated a panel session with Gregg Guerin–Senior Product Specialist, First Trust Global Portfolios; Hector McNeil–co-CEO and founder, HANetf; and Jason Xavier–Head of EMEA capital markets, Franklin Templeton ETFs.

The panel examined how rules-based and smart beta products are augmenting traditional passive offerings and allowing investors to move away from market-capitalised indices. It was agreed that this is particularly valuable in a late-cycle environment.

[L-R] Jake Moeller, Detlef Glow, Gregg Guerin, Hector McNeil, Jason Xavier. Photo Thomson Reuters.

Mr. McNeil encouraged the audience to reevaluate their perceptions of ETFs, arguing they should be considered a piece of technology rather than an asset class. Mr. Guerin highlighted how rules-based investments provided excellent diversification for investors, potentially providing them access to undervalued assets. Mr. Xavier pointed out how the European regulatory environment is influencing the market for ETFs, noting its potential to increase retail demand.

Some of the panellists were dismissive of the argument that some sectors (e.g., emerging markets) are more fruitful than ETFs for active managers. It was recognised that, increasingly, themes such as technology and ESG are the next innovations for the ETF market.

2017 macro review and outlook for 2018

The final session saw Jake Moeller, Head of Lipper U.K. and Ireland Research, moderate the popular macroeconomic outlook session with Keith Wade–Chief Economist, Schroders; Jason Day–Senior Investment Manager, Standard Life Wealth; and Patrick Armstrong–CIO, Plurimi Investment Management.

[L-R] Jake Moeller, Keith Wade, Patrick Armstrong, Jason Day. Photo Thomson Reuters.

[L-R] Jake Moeller, Keith Wade, Patrick Armstrong, Jason Day. Photo Thomson Reuters.

Discussions of the increasing interest rate environment, central bank activity, and liquidity dominated the panel. Mr. Wade noted that, despite the global shift from quantitative easing (QE) to tightening (QT), there will still be sufficient liquidity to maintain bond yields at around 3%.

Mr. Armstrong warned that investors should reduce return expectations in respect to higher equities valuations. On the assumption of nominal growth and earnings growth of 4.5% over the next seven and an average multiple of 16.5x in 2025, the S&P500 would produce a return of only 1.3% per annum, he stated.

Mr. Day noted that returns on a balanced portfolio will be more difficult to maintain, and he observed the large dispersion between value and growth assets.

The panel concluded that valuations across many asset classes are on the high side, but the members favoured risk assets over bonds. Both emerging-market debt and equities were popular. European and Japan equities were preferred over U.S. equities. Inflation, too, could now begin to stir as labour markets become tighter.

Expert opinions matter

All the sessions experienced a high level of audience engagement, with lively questions and debate contributing to the success of the event. The three hours of Continuing Professional Development credit allocated to the event by CISI were well earned.

A live “Twitter Wall” proved popular during the event, with considerable activity posted via #LAEF17.

Thomson Reuters Lipper is very proud to have assembled such accomplished panellists to this forum. Our considerable gratitude is extended for their generosity and thought leadership. It is vital to the industry that their experience and knowledge be shared.

We look forward to welcoming you all back in 2018!


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Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.


A Health Check of Europe’s Mutual Fund Market

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How does one ascertain the health of the pan-European mutual fund industry? While I’m able to control lifestyle factors—such as levels of exercise and diet—that may affect my health, the mutual fund market is an amorphous body of assets and liabilities reflecting an incalculable collection of differing objectives. The lifestyle factors this industry faces include not only prevailing market conditions but the aggregated expectations of all its participants.

Lifestyle factors have been a challenge

Recently, there has been plenty of challenging lifestyle factors for our industry. One can go back to “Black Monday” in the summer of 2015 and the subsequent commodity price collapse. We have had the Brexit referendum and the Donald Trump presidential election, both providing further uncertainty. Underlying regulatory initiatives also have directly affected the European mutual fund industry. Consider fund managers’ touch points to MIFIDII, EMIR, Basel III, Solvency II, Shareholdings Disclosure, AIFMD, and Dodd Frank as well as ongoing ESMA and FCA pronouncements.

Fund flows are a barometer of health

Flows are for me a critical measure of the fund industry’s health. It is difficult to conclude that on this metric alone, the industry is not in anything but robust health. According to the most recent quarterly Thomson Reuters Lipper data, the first nine months of 2017 have set the stage for a new record year in the pan-European fund industry.

Exhibit 1. Historical Assets Under Management of European Mutual Fund Market (to September 30, 2017 in € trillion)

Review of the European Fund Industry, September 2017

Source: Thomson Reuters Lipper.

Assets under management in Europe stood at €10.2 trillion at the end of September, with the U.K. encompassing nearly 20% of that total. We have been making good progress against the U.S. market, which stands at some U$20 trillion. Additionally, the European fund industry has enjoyed record net inflows of €614.2 billion (with the U.K. representing around 9% of that) for 2017 so far, far above the previous watermark recorded (€386 billion for all of 2015). The number for the first nine months of 2017 is well above the long-term 12-month average of €166 billion.

A good blend of asset growth is a healthy sign

Investors too are showing a healthy regard for differing asset classes. Perhaps not as risk-averse as you may expect in light of the challenging lifestyle factors mentioned above, equities are still buoyant. This is reflected in the flows into Lipper fund classifications: Equity Global (+€51.3 billion) is the best selling sector for the year 2017 so far, followed by Bond Global (+€38.0 billion), Bond Global USD Hedged (+€33.9 billion), and Bond EUR Short Term (+€31.2 billion) as well as Bond Emerging Markets Global in Hard Currencies (+€27.5 billion).

There has also been considerable product consolidation in Europe with respect to new fund launches. Some 1,400 funds have been launched in Europe and the U.K. for the year to date, a figure nearly 50 percentage points down from the launches for 2012. This undoubtedly reflects somewhat healthy competitive elements in the industry.

In light of the very challenging lifestyle events Europe’s fund market is facing in 2017 and beyond, it strikes me that it in pretty good shape with a healthy outlook for the future.

What Challenges will Fund Managers Face in 2018?

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The Gregorian calendar has one considerable fault: Each year December comes around much more quickly than expected! The upside, however, is that it provides financial market participants the opportunity to reflect, evaluate, and consider how they will respond to the challenges for the upcoming year.

Compliance touch points are increasing

According to Thomson Reuters Regulatory Data solutions, there were some 51,000 regulatory updates in 2015 globally. For U.K. and European fund managers there has been much to ponder in 2017, and 2018 will undoubtedly provide the same. Brexit looms large. MIFIDII, EMIR, Basel III, Solvency II, AIFMD, and Dodd Frank as well as ongoing ESMA and FCA pronouncements are forcing fund managers to look closely at their business models.

Yet, as we move into 2018 the pan-European fund market is without doubt very buoyant. According to Thomson Reuters Lipper data, the industry passed €10 trillion of total AUM in 2017. Net flows of some €600 billion as of the end of Q3 represented the highest net flows total since 2004. Barring any unforeseen crises before Christmas, 2017 will be a bumper year indeed.

Exhibit 1. European Mutual Fund Market – Net Fund Flows by Product Type to Q3 2017 (€bn) 

Source: Thomson Reuters Lipper.

Despite the rising tide, product dynamics have changed. From 2004 to 2014 passive funds and ETFs contributed on average 7% of the total annual sales of all funds in Europe. For 2015 this average jumped to 32%. For 2016 it was 24% and for 2017 (through Q3) it was around 14%. With its holistic offering BlackRock has, with AUM over €700 billion, twice the European asset base of its nearest rival (Amundi). Is it any surprise then that we have seen active fund groups such as Franklin Templeton and Fidelity launch ETFs in 2017?

Fund consolidation will have to continue

It is impossible to accurately predict how the markets will fare in 2018, but even with these healthy fund flows there must certainly be an impact on the number of funds available for sale to European and U.K. investors. According to Accelerando Associates, the US$16-trillion mutual funds market has some 9,500 mutual funds, with an average fund size of US$1.7 billion. Compare this with Europe where there are some 11,000 cross-border funds with an average fund size of only €260 million.

This cannot be sustainable. Indeed, Lipper data show new fund launches in Europe (including the U.K.) for 2017 (through Q3) are down 49% from 2012. Unsurprisingly, fund concentration in Europe is considerable. The U.K. fund market, for example, contains nearly 40% of its total assets in only 100 funds. This pattern is similar throughout Europe and ostensibly doesn’t auger well for boutique funds unless they are able to garner the attention of increasingly influential fund buyers.

Sales teams may restructure

Fund houses too will face pressure to reduce their sales teams. Accelerando suggests that 80%-90% of fund house revenues are generated from 10%-20% of sales staff; there is the potential to see current sales teams decreased an average of 35% over the next three to five years.

Even with a rising tide 2018 will undoubtedly be a year of consolidating fund ranges, more compact sales teams, and–I suspect–more rules-based product launches.

A late-cycle rotation out of passives could be the joker in the pack–and perhaps a topic for December 2018.

 


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

Dr. Mobius and the Evolution of Emerging Market Equities

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Occasionally, the global mutual fund industry produces a fund manager whose name becomes familiar even to those outside its usual orbit. One of these doyens, Franklin Templeton’s emerging markets (EM) pioneer, Dr. Mark Mobius, is set to retire after an esteemed 30 year career.

EM fund launches have been considerable

To put the durability of Dr. Mobius into perspective – when we go back to the late 1980s, there were only ten funds in what is now the broad-based Thomson Reuters Lipper Global Emerging Market Equity Funds classification. Today, there are some 1,200 funds in this classification, and in 2017 alone, we saw over 70 new fund launches.

The extent to which the broad EM church in equities has widened is reflected also by the growth in country and regional classifications: Asia, Europe, and Latin America all have their own separate EM classifications. Furthermore, there are 26 separate country fund classifications for countries from Morocco to Thailand, containing funds that could potentially contain a high proportion of EM shares.

Exhibit 1. AUM of Lipper Global Emerging Market Equity Classification (in U$ bn)

Source: Thomson Reuters Lipper.

Lipper assets under management data go back to 2003. For  that year global EM equities funds contained around U$115 billion AUM. Today, that total is just over U$1 trillion, which represents an average annual AUM growth rate of some 25% a year.

However, this has been anything but a neat compounding. In 2008 EM equity AUM contracted by 60%, and more recently, with the tapering of quantitative easing in 2015, some 20%.

Exhibit 2. Comparative 30-year performance of Lipper Global Equity Classifications (in U$ to December 31, 2017)

Source: Thomson Reuters Lipper

Source: Thomson Reuters Lipper, Lipper for Investment Management.

Performance and EM re-structuring

For the 30 years ended December 31, 2017, EM equity compounded at 8.8% pa (in U.S. dollars) in contrast to global equity ex-U.S. (6.5% pa), but it still falls short of global equity U.S. (9.1% pa). This was largely due to the magnitude of the global financial crisis drawdown, which affected EM equities over U.S. equities by a magnitude of 2x.

The evolution in EM equities isn’t just reflected in regional development and its infiltration into investor consciousness. As Dr. Mobius himself points out, the composition of EM markets has shifted dramatically over the last ten years. The proportion of “traditional” EM sectors such as energy and materials stocks have decreased materially with a commensurate increase in technology and consumer exposure.

Liquidity risks & passive flows

However, liquidity and volatility are key risks that, despite structural changes, remain. Gary Greenberg, manager of the U$3.4 billion Hermes Emerging Market Equities Fund, points out that of the 30,000 EM stocks he considers his investible universe, there are fewer than 3,000 of sufficient liquidity to include in a modest-sized EM equities portfolio.

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Compounding this issue further is the effect of passive vehicle concentration.  Approximately 33% of fund assets (at the end of 2017) in the Lipper Global EM Equities classification are held in passive vehicles. By comparison, the equivalent figure for all funds registered for sale in Europe is 18%. Any late-cycle rotation out of passive vehicles into active funds could certainly affect EM markets disproportionately.

By way of example, the most recent Eikon Fund Share Holders Report for Tencent (the largest holding in the iShares MSCI Emerging Market ETF) reveals that of the ten largest fund share holders for this stock, eight are passive or low tracking-error vehicles.

Exhibit 3. 5-Year Volatility of Lipper Global Equity Classifications (rolling quarterly in USD from 1991 to 2017)Source: Thomson Reuters Lipper

Source: Thomson Reuters Lipper, Lipper for Investment Management.

Volatility remains above other equities

Despite the possible headwinds of increasing interest rates and an appreciation of the U.S. dollar, the EM story remains compelling for many investors. The contribution of EM countries to global GDP growth is material, and market valuations are relatively attractive.

However, despite the myriad changes seen in EM during the time of Dr Mobius’s career, there hasn’t been a commensurate decrease in volatility of EM equities over that of other regions. The average of the five-year volatility in EM equities since 1987 (rolling quarterly in USD) is 46% higher than that of U.S. equities and 32% higher than that of global equities (ex-U.S.).

It remain to be seen what progress is made on this front over the next 30 years.


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

A Sparkling London Evening: U.K. Lipper Fund Awards 2018

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The 28th annual U.K. Thomson Reuters Lipper Fund Awards event was held at the elegant Banking Hall on March 14, 2018. A full house of 200 participants from the U.K. and international fund management industries created an exciting buzz ahead of the industry’s premier night of recognizing excellence in fund management.

The event was followed on Twitter with many members of the audience sharing their views via the hashtag #LipperFundAwards.

A full house at the Banking Hall ensured a great atmosphere. Photo, Thomson Reuters.

Setting the scene: 2017 – a good year for fund flows

Jake Moeller, Head of Lipper UK & Ireland Research at Thomson Reuters was the emcee for the evening. He set the scene with a keynote presentation revealing that even in the light of considerable regulatory initiatives, the Pan-European mutual funds industry was in robust health.

In 2017 the industry had passed the €1 trillion of assets under management with record net inflows of nearly €800 billion.

Jake Moeller highlights a Pan-European fund flow record and regulatory challenges. Photo, Thomson Reuters.

Jake also noted that only 12% of total Pan-European AUM was in passive vehicles and that the long-term average of net flows into passive vehicles since 2004 was around 10%. Despite a high of nearly 30% of flows in 2015 being in passive vehicles, this figure in 2017 had fallen back toward the long-term average.

He also examined the concentration of funds in the UK market noting that the top 100 funds contained 40% of assets in this market. He highlighted that none of the evening’s single-asset class winners were in these top 100 funds by AUM. He also highlighted the potential opportunity for active fund managers in a late cycle environment. Using the Eikon Fund Share Holdings report, he showed that for the largest 20 fund shareholders of HSBC, 15 were passive vehicles.

Guest Speaker – Matt Dawson

In an entertaining speech, former England rugby captain, scrum-half and key member of the winning 2003 World Cup team, Matt Dawson spoke on leadership, teamwork and how he has adapted the lessons of his sporting career into other fields.

Former England Rugby captain, Matt Dawson. Photo, Thomson Reuters.

Matt also outlined the important work of Great Ormond Street Hospital – the represented charity for the evening.

What does it takes to win?

In an onstage chat with Jake Moeller, Doug Sieg, the imminent CEO of Lord, Abbett & Co (the winner of the Bond Small Group Award), outlined some of the key factors contributing to its Award success.

Lord, Abbett & Co’s Doug Sieg, on stage. Photo, Thomson Reuters.

Doug discussed the attraction of the Pan-European fund market to U.S.-based firms and recognised that attracting and retaining talented staff was a key component for competing against more established European names. He also emphasised the importance of long-term thinking in order to be successful in this competitive market.

Lipper Fund Awards methodology

Lipper Fund Awards are based on the Lipper Leader ratings for Consistent Return. The awards are calculated using a utility function based on the effective return over multiple non-overlapping periods: three-, five-, and ten-year horizons. The calculations over multiple periods ensure that all periods in which a fund underperforms the average of its peer group are identified.

In addition, Lipper uses a utility function based on behavioural finance theory to penalize periods of underperformance, with more significant weightings given to excess negative returns. This methodology ensures that the winners of the Lipper Fund Awards are funds that have provided superior consistency and relative risk-adjusted returns compared to a group of similar funds.

The winning mutual funds in the U.K.

Twenty single funds from the largest peer groups by assets under management in the U.K. fund universe were honoured for the three-year category during the ceremony.

Marlborough Fund Managers was well represented this year collecting the Equity Europe ex UK category winner with Marlborough European Multi-Cap A Inc. It also collected the gong for the Equity UK category with its third party MFM Bowland fund.

The team from Yuki Funds flew in from Japan to collect its first UK Lipper Fund Award.

First time winners in the UK this year included Yuki Funds which collected the Japan category for Yuki Japan Rebounding Growth and EFG which collected the Bond Global category with New Capital Wealthy Nations Bd USD Ord Acc.

The popular Equity UK Income category was collected by TB Evenlode Income B and Sielern made another appearance this year winning the Equity US category with Stryx America USD.

A full list of winners can be found here.

The group awards

For the prestigious group awards a large group must have at least five equity, five bond, and three mixed-asset portfolios, and a small group must have at least three equity, three bond, and three mixed-asset portfolios.

Exhibit 1. Group award winners and commendations

A new face this year was Danish fund manager Sparinvest who won the Equity Small Group category. Ballie Gifford who also picked up a single fund award picked up the Equity Large Group Award and Marlborough Funds Management which having already collected two single fund awards won the Overall Small Group award.

RLAM had a very successful evening. Phil Reid (c) collected the Large Group Overall Award.

The big winners of the evening were Royal London Asset Management who not only collected a single fund award but won two group awards for Mixed Assets Large Group and the coveted Overall Large Group.

Thomson Reuters Lipper takes this opportunity to congratulate all the individual sector and group award winners. A full photo gallery of the event is available here and we look forward to seeing you all again for another successful evening night in 2019.

Bankers Hall in the City of London, proved a popular venue. Photo, Thomson Reuters.


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

Active Funds: Coming Out of the Blocks Slowly in 2018

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Having recently enjoyed a feast of inspiring Commonwealth Games performances, I was prompted to check out how well active funds have come out of the blocks in 2018.

I’m on the record as saying 2018 could be a good year for active funds. Typically, late-cycle environments precede a rotation out of momentum-biased ETFs and the increasingly expensive large-cap stocks they invest in, providing fertile ground for active stock pickers.

No signs of passive vehicle flow slow down in 2018

There is no doubt that flows into passive funds in Europe and the U.K. have been buoyant over the last few years, with some evidence of reaching “peak passive” at the end of 2017. Thomson Reuters Lipper data reveal that the average annual percentage of passive pan-European fund (ETFs and tracker funds) flows of total fund flows was 5% from 2004-2014.

Exhibit 1. Historical European Estimated Net Fund Flows by Product Type (€bn)

Source: Thomson Reuters Lipper

Source: Thomson Reuters Lipper

For 2015 passive vehicles had a huge year, constituting 32% of total fund inflows. For 2016 this figure fell to 24%, and for 2017 the figure was 11%. However, for Q1 2018 the provisional figure rose to over 30%, suggesting the love affair with passive funds is far from over in Europe.

Majority of active funds are performing below passives

Performance-wise, Q1 saw passive vehicles take an early and commanding lead. Only about 7% of active funds in the Lipper UK Equity classification beat the highest ranked broad-based tracker over the period. In the Lipper Europe ex UK classification the figure was higher, with 47% of active funds beating the highest ranked broad-based tracker fund. For the Lipper US Equity classification the figure was 34%.

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The “opportunity cost” of passive investing can still be considerable

When it comes to performance comparisons, it is important to consider the “opportunity cost” of not investing in an active fund (i.e., the potential outperformance of an index). Often this can be considerable. For example, for the five years to the end of 2017 the best performing active fund in the IA UK All Companies classification outperformed the highest ranking broad-based tracker by around 85 points—not inconsiderable. For Q1 2018 the comparable spread over the period was around 4 points. Again, for the period that was not insubstantial.

Fund investing is a marathon, not a sprint…

Of course, one needs to have correctly identified these winning funds in advance of the performance outcomes. Whilst I still believe that over the longer term, persistency of alpha generation can be found (consider, nearly 75% of the Lipper Fund Award trophy winners of 2014 were in the first or second quartile of their sectors for three-year performance at the end of 2017), over Q1 2018 random selection would have certainly favoured a passive option.

On the face of it Q1 was fairly nondescript for active funds. Fund flows and performance were firmly in favour of passive. However, fund investing is a marathon—not a sprint, and my faith in active funds to climb back up the gold medal tally by year-end remains.

 


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

China: From Black Monday to Summer of Love 2018

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The summer of 2015 was a balmy one until “Black Monday.” Only two weeks before, I had been invited to the launch of a China A-shares ETF product. It was indeed unfortunate timing–that product has since closed.

After Black Monday, fund flows into China-themed funds and ETFs in Europe atrophied. Thomson Reuters Lipper data reveal around €5 billion of net outflows from UCITs China-themed funds since that correction. However, Q1 2018 was a very good quarter and showed a considerable reversal of trend, with nearly €1 billion of inflows over the period. That was despite lacklustre performance over the same period.

Suddenly, there is a bit of a buzz about China. Is the trade war on or off?  What are the implications of its US$30 trillion of debt, and how will the inclusion of A-shares in MSCI indices impact the market?

Fund flows and fund launches

Currently, there are some 120 UCITs China-themed funds available for sale in Europe with around €27 billion of assets under management. That is approximately the same level of assets in these funds as around the time of the Black Monday correction. Despite poor recent data, this figure represents an increase of around 50% in total assets since 2010.

These flows are relatively small, however. To illustrate perspective, the total pan-European fund market AUM is around €10 trillion, and net inflows for 2017 were nearly €800 billion.

Despite the persistent outflows of UCITs China-themed funds, fund launches have been surprisingly resilient, with around 30 new funds and a handful of ETFs coming to market since August 2015. Although they have not collected many assets, they may well be poised to do so.

Exhibit 1. Performance of Lipper China Fund Categories From Black Monday Until May 24, 2018 (% in Local Currency)

Source: Thomson Reuters Lipper

Much ado about A-shares

The imminent inclusion of A-shares into the MSCI indices in June 2018 is gathering much interest. Exposure to the Chinese domestic economy, the shares’ low correlation to the U.S. dollar, and a broader investor base are viewed positively, but many fund managers urge a balanced view.

Gary Greenburg, head of emerging markets at Hermes Investment Management, believes selectivity is key: “The China A-share market contains thousands of companies, of which a number are interesting, a number are undervalued, and a small number are both interesting and undervalued.”

China: Passive or active exposure?

China faces the considerable macro headwinds mentioned above. However, Q1 2018 revealed strong performance at the stocks level. Research from Prusik Investment Management shows 45% of the China-domiciled stocks on average reported revenue and profit increases of 17% and 25%, respectively, for the period.

Many fund managers and analysts see the Chinese market as ripe for active stock pickers and warn against the indiscriminate exposure to already expensive companies that ETF purchases potentially lead to.

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Monitoring stock ownership reveals clues as to the role passive ownership may have in affecting stock prices. From the most recent Thomson Reuters Eikon fund shareholders report for Alibaba, of the 20 top fund holdings, 4 are passive funds, whereas for HSBC, of its 20 top fund holdings, 14 are passive funds. This dynamic will become increasingly marked as more China stocks make their way into popular indices.

The largest current holding in the iShares MSCI China A ETF, is Kweichow Moutai Co Ltd. This is currently trading on a PE multiple of 30.5x (against a peer group average of 21.5x). A good equity analyst will be able to tell you if this stock is well priced however, its current fund shareholders report reveals of the 20 top fund holdings, 7 are passive vehicles. Post June, this number will undoubtedly increase.

What does 2018 hold for China stocks?

If the Lipper Q1 fund-flows data for China set the pattern for the rest of the year, then summer 2018 could potentially be good for the region. Macro noise will create uncertainty, but it seems many Chinese companies are getting themselves into good shape. Controls on leverage should prevent the amplified volatility we saw around Black Monday.

There is a large disparity between Mainland China-listed shares, which constitute around 23% of global traded value but which will weigh in with the MSCI in June at under 2%. This is certainly a supportive long-term dynamic. However, it appears this is a region where blindly buying shares through a passive strategy is potentially riskier than using other strategies.

For many investors ESG and governance are key factors that would preclude many China shares. As active foreign investors and institutions gradually become more influential, this could improve governance, but only if China itself is prepared to share the love with minority investors.

 


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

Mutual Funds and the Brexit Vote – Two Years On

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We have just passed the two-year anniversary of the “Brexit” vote, and we are now heading into another crucial week. British Prime Minister Theresa May meets with her cabinet on Friday to finesse further details of the U.K.’s imminent departure from the European Union.

From a mutual-funds perspective there certainly are potential material impacts on how the U.K.’s current fund passporting arrangements will be accommodated (or otherwise) in the new relationship with the EU. Fund houses are undoubtedly hoping for some clarity on this soon.

Performance

Despite the uncertainty around Brexit for U.K. firms, the two-year period since the initial vote has coincided with strong performance of funds in Thomson Reuters Lipper classifications popular with U.K. investors,  particularly equities:

Lipper Global Classification % Growth 24/06/2016 to 19/06/2018 (in GBP)
Lipper Global Bond GBP Corporates 7.5
Lipper Global Bond GBP Government 3.0
Lipper Global Bond GBP High Yield 8.1
Lipper Global Equity Europe ex UK 34.8
Lipper Global Equity UK 30.7
Lipper Global Equity US 42.2

 

Fund Volatility

Fund volatility (as measured by the daily rolling ten-day standard deviation) of Lipper fund classifications popular with U.K. investors has declined markedly from the date of the Brexit vote, never returning to the original spike of late June 2016 (see chart below).

Exhibit 1. Daily rolling 10-day volatility of Lipper Fund Classifications

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Source: Thomson Reuters Lipper, Lipper for Investment Management

The inflation-led correction in U.S. markets from February 2018 can be clearly seen, but by comparison has caused less disruption–especially in bond fund volatility–than has the Brexit vote. This may be a signal that Brexit has now fizzled from a global news item into a particularly local event.

Lipper Global Classification % change in rolling 10-day volatility (1/7/2016 to 19/06/2018)
Bond GBP Corporates -62%
Bond GBP Government -69%
Equity Europe ex UK -25%
Equity UK -76%
Equity US -76%

 

Fund Flows

It’s difficult to interpret fund flows in the context of a single geopolitical event such as Brexit because of the myriad factors that determine investor preferences. From the end of June 2016 to the end of May 2018 estimated net flows into U.K.-domiciled funds are £55.4 billion. This can be considered a reasonable figure and is proportionally commensurate with pan-European flows.

Global equity funds have certainly been winners, likely supported by strong performance. Interestingly, however, there have been net outflows from U.K. equity funds and U.K. equity income funds, despite robust performance (some of which is undoubtedly attributable to the fall in Sterling since the vote). Global equity income funds too have suffered outflows perhaps as many popular “bond proxy” stocks become more expensive and investors buy into the global growth story.

The ten top Lipper global classifications ranked by estimated net flows (£m) are:

Equity Global £20,405
Money Market GBP £10,066
Bond Global £9,587
Equity Global ex UK £6,448
Mixed Asset GBP Aggressive £4,237
Absolute Return GBP High £3,562
Bond Global High Yield £3,083
Bond GBP Government £2,653
Mixed Asset GBP Balanced £2,551
Mixed Asset GBP Conservative £2,288

 

The ten bottom Lipper global classifications ranked by estimated net flows (£m) are:

Equity UK Income -£11,793
Equity Global Income -£5,443
Equity UK -£3,939
Absolute Return GBP Medium -£2,419
Equity Sector Real Est Other -£1,460
Equity UK Sm&Mid Cap -£1,404
Bond EUR Corporates -£856
Real Estate UK -£821
Bond GBP High Yield -£634
Alternative Equity Market Neutral -£472

Fund Launches

For many fund managers the aforementioned uncertainty surrounding passporting has caused them to consider solutions to ensure they will be able to sell their product suites throughout Europe.

In the two years since the Brexit vote there have been 309 U.K.-domiciled funds launched and 307 Dublin-domiciled funds registered for sale (RFS) in the U.K. launched (primary funds only). Interestingly, the latter figure actually represents a 25% decrease from the number of Dublin-based RFS U.K. funds launched in the two years before the Brexit vote.

Anecdotally, I would have expected the number of Dublin launches of funds registered for sale into the U.K. to be proportionally higher, but as with all things Brexit, interpreting numbers can be as difficult as reading tea leaves.

 


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 


The Due-Diligence Imperative: Lipper Fund Selectors Forum 2018

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The fourth annual Thomson Reuters Lipper Fund Selectors Forum was held at the Thomson Reuters Auditorium, Canary Wharf, on July 4, 2018.

Mutual fund research and selection, along with portfolio construction, are crucial components of the investment distribution value chain. Increased due-diligence and governance requirements imposed by regulators mean the fund selector and portfolio constructor have more influence on–and responsibilities to–investors than ever before.

Lipper was pleased to host again this flagship industry event showcasing the challenges faced by the fund selection and portfolio construction industry in 2018 and the benefits it brings to the financial services industry.

Once again, we were proud to partner with the Chartered Institute of Securities and Investment (CISI). We welcomed some 150 guests, consisting of private wealth advisors, financial planners, fund managers, gatekeepers, platform providers, investors, and journalists.

Presentation 1: fund flow-patterns in Europe

Lipper’s Detlef Glow

Lipper’s Head of EMEA Research, Detlef Glow, outlined current investor appetite by examining trends in pan-European fund flows. He revealed that the mutual fund market in general is in robust health, with a milestone of over €10 trillion in assets under management reached, following a record year of sales in 2017.

Key points included:

  • YTD May 31, 2018, the best selling sectors were Unclassified, Equity Global, and Equity Emerging Markets Global, with approximately €42 billion of combined estimated net inflows.
  • Over the same period net outflows from Money Market GBP, Bond Euro Corporates, and Bond USD High Yield totalled approximately €22 billion.
  • Aviva Investors, BlackRock, and UBS, with approximately €50 billion of net inflows, were the top fund houses for 2018 YTD.
  • ETFs and tracker funds totalled 12% of total AUM in the pan-European funds market, with the rest held by active funds.

Panel 1: Fund selection and the due-diligence imperative

(L-R) Jake Moeller, Victoria Hasler, Tony Yousefian, Lucy Walker

Jake Moeller presided over the first panel session with panellists Victoria Hasler from Square Mile Research, Tony Yousefian from FundCalibre, and Lucy Walker from Sarasin, who discussed fund selection criteria, client alignment, sell-decision rules, the importance of environmental-social-governance (ESG) criteria, and the changing nature of the fund manager relationship.

Key points:

  • Consistency of performance and style remains a major criterion for fund selectors.
  • Deviating from defined processes (even if it results in outperformance) is a red flag for a potential sale.
  • Underperformance doesn’t always reflect a lack of skill.
  • Fund capacity is a potential problem, but it needs to be considered on a fund-by-fund basis.
  • ESG considerations are no longer incidental to fund selectors and generally form a key part of the gate-keeping process.
  • Good fund selectors need to be aware of boutique offerings and be prepared to bring new ideas to market.

Panel 2: portfolio construction and the macro environment

(L-R) Jake Moeller, David Coombs, Peter Fitzgerald, Justin Onuekwusi

Jake Moeller moderated the second panel with Peter Fizgerald, CIO, Macro and Multi-Asset at Aviva Investors; David Coombs, Investment Manager at Rathbones; and Justin Onuekwusi, Multi-Asset Fund Manager at LGIM.

The panel discussed the evolution of portfolio construction from long-only funds of funds to today’s popular multi-asset and targeted-volatility funds. The panel also outlined portfolio positioning and discussed current headwinds and opportunities in the market.

Key points included:

  • Cost pressures and low barriers to entry have made a traditional active fund-of funds structure a difficult proposition to market.
  • Some fund-of-funds structures still have a place, but structures need to be carefully considered.
  • Investors are now much more risk conscious, and absolute returns are preferred to relative returns.
  • Demand for income and higher preretirement management are creating a bigger gulf between retail and institutional investors.
  • Panellists were sanguine on selected equities’ holding cash to reduce volatility, but investors need to be creative by using tools such as derivatives to enhance flexibility.
  • Beware the use of “late cycle.” There is still potential for markets to run for several more years in a “lower for longer” interest-rate environment.

Panel 3: Diversity in the funds industry

(L-R) Jake Moeller, Bev Shah, Maike Currie, Natalie Kenway

Jake Moeller moderated the final panel of the morning, which examined the issue of workplace diversity in the funds industry. He was joined by Bev Shah, founder and CEO of CityHive; Maike Currie, Investment Director at Fidelity; and Natalie Kenway, Deputy Editor at Investment Week. The panel outlined the importance and benefits of improving gender, sexuality, ethnicity, disability, and age diversity.

Key points included:

  • “Group think” is a huge risk to companies; improved diversity reduces this.
  • Cognitive diversity should be a broad objective of all working environments.
  • Female role models in the financial industry are too few.
  • Quotas and legislation are not always ideal but are important early in the formation of the diversity narrative.
  • Diversity formulated as a box-ticking exercise can be counter-productive.
  • Fund groups are now much more aware of diversity issues, and the narrative is becoming more popular with the readers of mainstream and trade press.
  • Flexibility in the workplace is a strong foundation for improving broad diversity.
  • Managers should consider their workplaces as a “community” and encourage networking among its different constituents.
  • The fund selector has a key role to play in lobbying fund houses to improving diversity through the request-for-proposal (RFP) process.

Audience engaged

Audience participation at the third annual Fund Selectors Forum was exceptionally high, with excellent questions and some particularly passionate points of view being raised throughout the event. At the start of the Forum audience members were encouraged to engage this event via social media, and #LFSF18 garnered considerable commentary.

The issues raised in this year’s Fund Selectors Forum are at the forefront of the industry and will continue to evolve in 2018. Thomson Reuters Lipper and the CISI have demonstrated the importance of facilitating such crucial debates.

We look forward to welcoming you again in 2019.

 


Thomson Reuters Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

 

 

Active Funds 2018: Struggling at Three Quarter Time

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I’m on the record as saying 2018 could be a good year for active funds. Typically, late-cycle environments precede a rotation out of momentum-biased ETFs and the increasingly expensive large-cap stocks they invest in, providing fertile ground for active stock pickers.

It is quite difficult to know where exactly we are in the cycle and just how late in fact we are in it, but there is no doubt that flows into passive funds in Europe and the U.K. have been buoyant over the last few years.

Lipper data reveal that the average annual percentage of passive pan-European net fund flows (ETFs and tracker funds) of total net fund flows was a modest 5% from 2004-2014. However, in recent years there has been a structural shift in this average. For 2015 passive vehicles had a huge year, constituting 32% of total net fund inflows. For 2016 this figure fell to 24%, and for 2017 the figure was 18%—all well above that longer-term average of 5%.

A receding tide floating only passive boats

However, data to the end of Q3 2018 reveal a comparatively poor year for both active and passive vehicles. For this period there have been net inflows for all types of funds of only some €6 billion (compared to total net inflows for 2017 of nearly €800 billion). See Figure 1 below.

Figure 1. Pan-European Estimated Net Flows, 2004 to Q3 2018 (in € billion)

Source: Lipper by Refintiv

Active funds have had net outflows of €44.0 billion, and passive vehicles (index funds and ETFs combined) have had net inflows of €56.4 billion. So, it appears that unless active funds have a record-breaking final quarter in 2018, they will be unable to keep their heads above water–as in 2008 and 2011.

Performance matters

Performance-wise for Q3 2018, passive vehicles are fairly well ahead of their active counterparts.

Figure 2. U.K. Performance

Source: Lipper for Investment Management.

Source: Lipper for Investment Management.

Only 34% of active funds in the Lipper UK Equity classification beat the highest ranked broad-based tracker over the period. In the Lipper Europe ex-UK classification the figure was lower, with 25% of active funds beating the highest ranked broad-based tracker fund.

Figure 3. Europe ex-U.K. Performance

Source: Lipper for Investment Management.

For the Lipper US Equity classification the figure was 31%. The longer-term performance periods to the end of 2017 are not particularly stellar. But, perhaps surprisingly in the competitive U.S. market at least, active funds up to Q3 are doing better than in the longer-term data.

Figure 4. U.S. Performance

Source: Lipper for Investment Management.

Opportunity cost is still material

When it comes to performance comparisons, it is important to consider the “opportunity cost” of not investing in an active fund (i.e., the potential outperformance of a fund over an index). Often this can be considerable. The orange bars in each of the graphs show this. For example, in the five years to the end of 2017 the best performing active fund in the Lipper UK Equities classification outperformed the highest ranking broad-based tracker by around 105 percentage points—not inconsiderable.

For Q3 2018 the comparable spread over the period is 11 percentage points. There are certainly some active funds doing well, just not that many of them.

A tough market for all–especially active funds

On the face of it the period to the end of Q3 2018 has been fairly nondescript for active funds in aggregate. However, compared to the record year of 2017, it is a tough market in Europe for all fund providers, both passive and active.

I remain an advocate of active funds and believe we could still see an improvement of relative data by the end of the year. I don’t lose sleep over short-term data, but I will concede there is much room for improvement in the final quarter of 2018.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

Emerging Market Equities–Keeping Their Nerve?

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I recently visited a fund buyer conference in London that exclusively showcased a selection of emerging-markets (EM) equities funds.

In the current environment I had expected the conference to be potentially a febrile affair, but I was struck by the pervasive sense of calm–from the fund managers, fund buyers, and asset allocators alike.

Outflows in EM equities Q3 2018 have been material

It’s understandable to expect a certain amount of enthusiasm for an asset class at a conference held in its honor, but Lipper data reveals that investors overall have retreated from the asset class. For Q3 2018 pan-European-based funds in the Lipper Equity Emerging Markets Global classification had estimated net outflows of €5 billion. To the nine months ended September 30, 2018, the total overall net inflows for EM equity funds were only €0.3 billion. For the same period in 2017 the estimated net flows were a relatively robust €15 billion.

EM equity performance has struggled to the end of Q3 2018, returning a negative 9.4% in U.S. dollars, compared to the Lipper Global Equity US classification, which returned a positive 8.7% (in USD). EM’s poor performance has resulted in some US$103 billion being wiped off the value of these funds worldwide over the nine months to the end of September 2018.

Asset allocators remain largely unmoved

It appears much of the outflows may have been “hot money.” Institutional investors have barely stirred. The Lipper Life Office Asset Allocation Survey for September 2018 reveals the average portfolio allocation to EM equities in the Flexible Investment Sector was 2.0%. For January this exposure was 2.2% and for September 2017 2.3%. That is coming down from a small base certainly, but it is hardly a damning indictment for the asset class.

Figure 1. Performance Chart – EM Equities v Global and US Equities (in USD, 9 months to September 2018)

Source: Lipper for Investment Management.

The headwinds faced by EM equities are readily identifiable by many analysts: rising interest rates, potential USD strength, the fallout from escalating trade wars, and geopolitical issues, dominated recently by Turkey. These headline issues may have spooked many investors, but EM equities managers and asset allocators themselves seem to be keeping cool heads.

Do we understand EM markets better today?

Perhaps underlying fundamentals for EM remain reasonable enough to support strategic investors’ longer-term theses for the asset class. Year-to-date earnings in EM stocks have largely remained strong, and returns have been dominated by exchange rates.

Hermes Investment Management’s Head of EM, Gary Greenburg, put it quite simply in his recent Lipper Alpha podcast: “What people believe to be the case can be more powerful than what is the case. People believe that EMs are cyclical plays, they believe that they are affected by the USD, they believe that they are capital importers and commodity exporters. In fact, this no longer characterises EM.”

Perhaps this time, the significance of these structural changes is finally beginning to sink in and reduce panic levels.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Thomson Reuters cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

Future Fund Challenges: Lipper Alpha Expert Forum 2018–Review

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The thirteenth annual Lipper Alpha Expert Forum was held in London on November 8, 2018 and maintained its reputation as one of the European mutual fund industry’s premier thought-leadership events.

We welcomed some of the preeminent fund industry executives in Europe to share their views on key developments and challenges facing the industry today.

Once again we partnered with the Chartered Institute of Securities and Investment–the leading professional investment body in the U.K.–as our co-hosts, and a full house in the Thomson Reuters Auditorium ensured a lively debate.

Future directions for fund groups

Lipper’s Jake Moeller moderated the morning’s first panel session and welcomed Martin Davis, Head of Europe, Aegon Asset Management & CEO, Kames Capital; Eoin Murray, Head of Investment, Hermes Investment Management; and Keith Skeoch, Co-CEO of Standard Life Aberdeen Plc.

(L-R): Jake Moeller, Eoin Murray, Martin Davis and Keith Skeoch

2018 – a difficult year

The panel noted that there had been a substantial change in the environment for fund groups in the last twelve months. Mr. Murray noted that “2018 had been a much more challenging year from an investment perspective after 2017 being characterised by strong returns and low volatility.” Mr. Davis reflected on global politics becoming more difficult to ignore, causing “direct changes to the expectations of investors’ appetite to risk and products.”

Mr. Skeoch similarly noted that recently active fund managers had valued “highly concentrated” assets such as those in the U.S. and the growth style at the expense of “disciplined long-term processes.” A subsequent change to this could “impact product design into 2019/20″ he said.

Increased regulation since Lehman’s only part of the job

Ten years on from the Lehman’s crises, the panel noted that the governance and regulatory regime was much stricter, it wasn’t according to Mr. Skeoch “a quick fix for the restoration of trust.” Mr. Davis called for a more holistic approach to regulation in an “environment of increasing vertical integration” of firms noting “that the end customer may not understand the purpose of differing (inter-departmental) regulation.”

Active funds and passive funds

As three predominantly active houses, all the panellists spoke in favour of active funds management but noted the disruption the increasing trend in passive investing has caused. Mr. Murray noted that the “passive trend was here to stay” and added that there was a potential “peak passive number but we’re not there yet.”

Mr. Davis agreed that the trend for passive funds had left active fund groups competing for a “smaller slice of the pie” stating that there were “too many active fund managers, with little product differentiation.”

Mr. Skeoch was circumspect on the framing of the current debate. He noted the potential for a changing tail-wind to support active funds over the longer term. He stated that active firms need to examine their propositions more broadly: He said: “What’s the role we play? Which part of the risk/ return spectrum do we want to operate in?” and warned that firms would be doing their clients a disservice if they “simply focused on price.”

ESG & Diversity

The panellist all agreed on the merits of ESG and the cultural shift in investment processes and firm thinking. All three firms have a strong pedigree on ESG investing.  Mr. Murray noted that these issues were “critical to our core beliefs at Hermes.” He also recognised that improving issues such as workplace diversity were a work in progress but limited by low turnover at the top of the firm.

Mr. Davis warned that there were many firms “jumping on the bandwagon” for whom ESG criteria were more of a marketing consideration. Mr. Skeoch noted that on the gender pay gap, his firm “needed to get better” and that “it wasn’t just about gender.”  He highlighted that his company was a “recent signatory to the Government initiative on race” and was becoming increasingly “proactive and disciplined on the way we look at hiring, promotion and succession planning.”

The European fund flows environment

Detlef Glow, Head of Lipper EMEA Research, outlined key patterns of flows into mutual funds in 2018. He noted that after a record year of flows in 2017 and the industry surpassing the €10 trillion assets under management milestone, the environment in 2018 had been substantially more difficult for fund groups with net flows of only €50 billion to the end of Q3 2018.

Detlef Glow

Mr. Glow noted the relative popularity of global equity funds which have collected over €20 billion of net inflows, reflecting investor appetite for regional diversification. He also noted that flows and AUM are both dominated by passive vehicles with active funds actually suffering net outflows for the year to Q3.

Mr. Glow also noted that of the top ten firms in Europe for flows to Q3 2018, seven of them did not actually have ETFs in their product suite

(R)evolution in the ETF Industry

Detlef Glow moderated the panel session with MJ Lytle–CEO, Tabula Investment Management; Hector McNeil–co-CEO and founder, HANetf; and Andrew Walsh–Head of UKI Passive & ETF Specialist Sales, UBS Asset Management.

(L-R) Detlef Glow, Hector McNeil, MJ Lytle and Andrew Walsh

The panel examined whether ETFs had become the product of choice for European investors, how new ETF promoters might succeed in the crowded provider environment, the lack of innovation in smart-beta space and the potential growth of active ETFs

Mr. McNeil encouraged the audience to re-evaluate their perceptions of ETFs, arguing they should be considered a wrapper rather than an asset class and compared them to a digital product where a mutual fund was analogue.

Mr. Walsh recognised the benefit that the passive industry had brought to active investors arguing that from five years ago, the ETF industry “had shaken out index huggers and forced the prices of active funds down.”

Mr. Lytle said it was harder to assess the trends that were driving the long-term growth of ETFs arguing that it was more about the value of the wrapper: “ You can launch an ETF and sell it on to a broker” he said, concluding this reduced the regulatory burdens of such things as AML and KYC requirements for a fund firm.

Mr. Lytle also argued that there would be substantial growth in active ETFs in the near future, especially in bond products. Mr. McNeil concluded on a very buoyant point: “In ten years time, all product launches will be ETFs.”

2018 macro review and outlook for 2019

The final session saw Jake Moeller, Head of Lipper U.K. and Ireland Research, moderate the popular macroeconomic outlook session with Shamik Dhar–Chief Economist, BNY Mellon; Andrew Milligan–Global Head of Strategy, Standard Life Wealth; and Patrick Armstrong–CIO, Plurimi Investment Management.

(L-R) Jake Moeller, Shamik Dhar, Andrew Milligan and Patrick Armstrong

Discussions of the tightening interest rate environment, central bank activity, and liquidity dominated the panel with some discussion on where we are in the cycle. Mr. Dhar noted that “2017 was the story of global synchronised growth but that 2018 has been a much more idiosyncratic story.” He also painted a picture of slowing growth into 2019:  “The U.S. could drop to 2.5% growth range, China coming down from 6.5% to 6%, the Euro area 1.5% and overall global growth of 3% -3.5%.” he said.

Geopolitics matter…

Andrew Milligan stated that the markets had priced in a lot of bad news: “If we saw some decent profits growth into 2019, we could see financial markets rally quite nicely even against a slowing growth backdrop.” He noted a point of caution on geopolitical issues: “Markets can cope with tariffs and Brexit,” he stated “but there could be a complete recasting of the U.S./ China relationship.” He also mentioned Italy as another “potential geopolitical headwind.”

Inflation could too…

Mr. Armstrong had a divergent view on the potential risk of inflation which Mr. Dhar had described as the “dog that didn’t bark.” Armstrong viewed the potential for employment capacity in the U.S. to have a more significant effect than expected: “The biggest issue businesses in the U.S. face today is not being able to fill job openings – the Phillips curve has been incredibly flat but I believe is beginning to steepen now.”

Asset Allocation outcomes

In conclusion Mr. Armstrong stated that he was “short U.S. bonds and equities” and taking risk where “people were scared: We own Italian bonds and we’re short bunds.” Mr. Dhah believed there was still value in both selected bonds and equities. He added that investors could also consider “hedges such as buying volatility on dips.”

Mr. Milligan suggested holding “higher levels of cash in 2019 but put it to work in buying a mix of global equities and as long as interest rates rise slowly buy into real yields in fixed income markets.”

Expert opinions well received

All the sessions experienced a high level of audience engagement, with lively questions and debate contributing to the success of the event. The three hours of Continuing Professional Development credit allocated to the event by CISI were well earned.

A live “Twitter Wall” proved popular during the event, with considerable activity posted via #LAEF18.

Lipper is very proud to have assembled such accomplished panellists to this forum. Our considerable gratitude is extended for their generosity and thought leadership. It is vital to the industry that their experience and knowledge be shared.

We look forward to welcoming you all back in 2019!

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

Mutual Fund Selection: In Praise of the Quantitative Screen

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Mutual fund selection is a combination of art and science. The art is qualitative assessment and evaluation. The science is the forensic breakdown and analysis of performance outcomes. We are constantly reminded by regulators of the frailty of relying on the past to predict the future–and rightly so. Investors must treat past performance with caution.

Past performance—the only evidence we have

The simple fact is that past performance is the only meaningful footprint any fund manager leaves behind. It is the only tangible evidence to verify–or indeed counter–the slick marketing collateral fund groups use to seduce us.

How we analyse this past performance is crucial. It is too simple to allude, as many critics of past performance do, to the randomness of future outcomes. Certainly the future is random, but not the contribution of skill to future outcomes. Taking a fund manager’s percentile ranking at any point in time poses the same problems for a potential investor as does looking at the balance sheet of a company. It is just a snapshot.

What is more important for us to do is to break down the performance over many periods and examine it forensically.

Data mining the wheat from the chaff

There are some 13,000 genuine cross-border funds from which European buyers can choose. There is no way any fund buyer can be intimate with the entire universe of available funds. A well-built quantitative screen is a sensible approach to identifying those funds which warrant further investigation.

A high-quality database of funds is essential for a robust quantitative screen. Lipper for Investment Management is a very powerful tool for building screens. It allows users to incorporate, with ease, a plethora of relative and absolute return metrics over rolling periods and within multiple sector classifications. Lipper sectors are constantly monitored to ensure that like-for-like data can be readily extracted and compared.

Is there evidence of consistent alpha?

The starting point for any meaningful quantitative screen is to extract the fund manager’s performance and examine it within the context of how much active risk the fund manager has taken relative to a benchmark and, if necessary, a fixed-return outcome such as cash. At its simplest the quantitative screen must answer the question: “Has my fund manager consistently converted active positions into alpha?”

In building a quantitative screen, fund selectors will have their own preference for different metrics and calibrations. My example below (Figure 1.) ranks U.S. funds by a combination of three one-year rolling periods of relative return (40% weighting to current year, 30% to t-1 year, 20% to  t-2 year) and 10% to the current three-year Sortino ratio.

Figure 1. Output of a Lipper generated Quantitative Screen for U.S. Equities 

Source: Lipper for Investment Management

Source: Lipper for Investment Management, Jake Moeller.

Science plus art equals better fund research outcomes

The rudimentary quantitative screen above highlights funds that have produced strong risk-adjusted returns with consistency—a good starting point for further investigation.

There are some obvious limitations to the type of returns-based analysis in a quantitative fund screen. They are limited to the track record of the fund and they do not provide much colour on elements such as style and factor biases. However, this is where the importance of the qualitative component (the “art”) of fund research comes in.

The qualitative art of fund selection is for me, as important as the science, but I wouldn’t even commence my search without a decent quantitative screen to point me in the right direction.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

2018 – A Tough Year for Active Mutual Funds

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Since the days of the Delphic Oracle, it is in human nature to try to predict the future. I, for one, concede it is a difficult skill! At the end of 2017, I optimistically predicted that 2018 could be a good year for active funds. It has turned out to be a very testing one indeed—for mutual funds across the board and active funds in particular.

The thesis is that, typically, late-cycle environments precede a rotation out of momentum-biased ETFs and the increasingly expensive large-cap stocks in which they invest, providing fertile ground for active stock pickers.

However, quantitative easing and tightening has been distorting the market cycle considerably. Judging where we are in a “normal” market cycle is more art than science, but the complexity today is incalculable. The sudden shift in volatility which started in February 2018 hasn’t precipitated, as yet, a sustained structural shift in momentum.

2018 – A tough year all around

Undoubtedly, 2018 was challenging. In local currencies, the Lipper Global Equity US classification returned -6.3%, Lipper Global Equity ex-US -14.1%, Lipper Global Equity Europe -13.0%, and Lipper Global Equity UK -11.0%.

Whilst 2017 was a record-breaking year for pan-European fund flows, with Lipper data showing €760 billion of estimated net inflows, 2018 was dire. Outflows of €129.2 billion represent the first after six consecutive years of net inflows.

Figure 1. Pan European Estimated Net Flows 2004 to 2018 (in € billion)

European Fund Industry Review 2018

Source: Lipper at Refinitiv.

Performance matters

In terms of relative performance for 2018, passive vehicles secured a comprehensive victory over their active counterparts as the graphs below reveal.

Figure 2. UK Equity Funds Classification – Comparative Active & Passive Performance

Source: Lipper at Refinitiv

Only 8% of active funds in the Lipper UK Equity classification beat the highest ranked broad-based tracker fund in the same classification in 2018.

Figure 3. Europe ex UK Equity Funds Classification – Comparative Active & Passive Performance

Source: Lipper at Refinitiv

In the Lipper Europe ex-UK classification the figure was slightly higher, with 14% of active funds beating the highest ranked broad-based tracker fund in the same classification.

Figure 4. US Equity Funds Classification – Comparative Active & Passive Performance

Source: Lipper at Refinitiv

In perhaps the most difficult classification to outperform—the Lipper US Equity classification—the performance of active funds was higher, with 24% of active funds beating the highest ranked broad-based tracker fund in the same classification.

Longer periods improve the numbers, but not by much

It is dangerous to place too much importance on one-year data, but for each of the three- and five-year time periods, the data reveals that in aggregate for each of the three classifications above, investors would have been better off in a tracker fund.

Opportunity cost remains material

When it comes to performance comparisons, it is important to consider the “opportunity cost” of not investing in an active fund (i.e., the potential outperformance of a fund over an index). Often this can be considerable.

The orange bars in each of the graphs show this. For example, in the five years to the end of 2018, the best-performing active fund in the Lipper UK Equities classification outperformed the highest ranking broad-based tracker by nearly 37 percentage points—a considerable outperformance for investors in that fund.

A tough market for all – especially active

2018 was undoubtedly difficult for fund managers and investors alike. Further volatility, geopolitical uncertainty, and central bank influence will likely throw more curveballs for the market, but I remain an advocate of active funds.

We may soon enter a period which may be more conducive for active funds in aggregate but concede there is much room for improvement in 2019, and I will not be making any Oracle-like predictions this year.


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

Upgrading Lipper Fund Classifications 2019

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In 2019, Lipper is upgrading our fund classification schemes. This is a process fundamentally embedded within our business. It is a core part of our DNA. Simply put: categorizing funds is what we do.

There are two main schemes that will benefit from the release: US and Global.

The Lipper US Fund Classifications are designed exclusively for the world’s largest fund market. They are delineated into open-end, closed-end and variable annuity categories.

The broader Lipper Global Classifications (LGCs) include all of the above US funds, but also provide our customers with a single definitions-based approach across all markets and funds. Our commitment to transparency and thoroughness is unique. We have more than 400 categories in our current LGCs and are adding more as the fund market evolves.

Fund classification – a changing science

Fund classification was once relatively straightforward. Collect the market benchmark, identify the funds with that benchmark and then create categories where you have a defined critical mass of funds. This plan still holds perfectly true for many of Lipper’s proprietary sectors and this will continue.

After the global financial crisis, the assignment of funds into sectors has become increasingly complex. The last ten years have seen a sea change in the way that fund managers attempt to protect themselves from any future catastrophic market events. Our classifications continue to evolve as the industry releases new styles of funds to address these issues.

Product evolution needs to be incorporated

We continue to see the growth of “target” and outcome-based funds—funds with no benchmark that aim to provide a stated return within a certain timeframe. Other product types such as liquid alternatives, absolute return funds and multi-asset funds are also becoming increasingly popular.

Being able to make relevant fund comparisons is always crucial, but a new system for classification is necessary. The “signposting” technique is often employed. What does that mean? We have to acknowledge and accept that not all target funds will behave in the same way. This is often true even when funds possess a similar “hedge-like” strategy. Lipper’s job is to identify similar “outcomes” which can lead to a clearer investor “signpost”. In other words: “Here are the funds you may choose that have the same ‘outcome’ in mind.”

Classifications: art and science

There is actually more subjectivity involved in fund classification design than one might immediately think. It is invariably a mixture of art and science. Educated investment specialists can still fail to agree on where or how a particular fund should be classified and which categories should be created.

Conflicting opinions on the highest priority attributes (and subsequent classification triggers) can all be “technically correct”. Different approaches can validly exist. For instance: Should we prioritize geographic exposure over currency exposure? How many countries constitute sufficient diversification for a regional class? How much does hedging matter? What exactly do we mean by “funds with a predominant weighting to…”?

What makes a robust fund classification system?

It is paramount to have a consistent rules-based approach. Subjectivity can only be tolerated in the design of the classification system itself, but not the classification of individual funds. To this end, Lipper’s analysts receive constant training to ensure that objectivity and consistency reign supreme.

The system needs to be fair, independent and free from any external influences and bias. Trust is still a major part of our philosophy. The classification systems drive the Lipper Fund Awards and the Lipper Ratings system. We take these responsibilities very seriously indeed.

We look forward to delighting our customers with an improved fund classification suite. Watch this space for further specific details about the forthcoming release of Lipper Classifications 2019.

Lipper and Refinitiv customers can find more information via this link.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

 


Review: U.K. Lipper Fund Awards 2019–Shine like a Diamond

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The 29th annual U.K. Lipper Fund Awards event (and the first under the Refinitiv banner) took place at London’s elegant Banking Hall on March 14, 2019. A full house of 150 participants from the U.K. and international fund management industries created an exciting buzz ahead of the premier night of recognizing excellence in fund management.

London’s Banking Hall proved a popular venue. (Henrik Andersen/ Refinitiv)

Lipper Awards now powered by Refinitiv

Leon Saunders-Calvert, Head of Sustainable Investing & Fund Ratings at Refinitiv, introduced the company and affirmed its commitment to the prestigious Lipper Awards, stating: “We’re committed to delivering more content, more fund product offerings, more innovative delivery systems, and more comprehensive global funds coverage than ever before. As the global leader in fund performance data, tonight we celebrate true excellence in the industry.”

Leon Sanders Calvert, Head of Sustainable Investing & Fund Ratings – Refinitiv. (Henrik Andersen/ Refinitiv)

Setting the scene: 2018 – success despite sailing into a headwind

Jake Moeller, Head of Lipper U.K. & Ireland Research at Refinitiv, was the emcee for the evening. He reflected that following record inflows in 2017 of nearly €800 billion, the Pan-European mutual fund industry suffered net outflows of €150 billion in 2018 under increasingly volatile market conditions.

Lipper’s Jake Moeller highlights opportunities in the European funds market. (Henrik Andersen/ Refinitiv)

Despite this, Mr. Moeller highlighted the opportunities existing for fund management firms. He noted while the largest 100 funds in the U.K. contain 39% of assets, only two of the evening’s award winners fell within this segment.

Mr. Moeller also highlighted the potential opportunity for active fund managers in a late-cycle environment by revealing the concentration in ownership in large capitalisation stocks. Apple’s fund ownership summary in Eikon revealed nine of the ten-top fund owners as passive vehicles.

Guest speaker: Dame Frances Cairncross

In a thought-provoking presentation, economist and former journalist, Dame Francis Cairncross, outlined key macro and geopolitical issues which “keep me awake at night.” These included tension in Kashmir, the rise of populism, and the concentration of global debt.

Dame Frances Cairncross addresses the audience. (Henrik Andersen/ Refinitiv)

Dame Cairncross concluded optimistically, citing improvements in life expectancy of women, increasing creativity in markets, and the potential of artificial intelligence.

What does it take to win?

This year’s onstage “fireside chat” saw Mr. Moeller interview Paul Glover, Chief Investment Manager at NFU Mutual (the winner of the Equity Small Group Award), who outlined some of the secrets of his firm’s success.

NFU Mutual’s Chief Investment Manager, Paul Glover chats with Jake Moeller. (Henrik Andersen/ Refinitiv)

Mr. Glover revealed that committed focus on its customer base and a collegiate working environment were instrumental in creating the conditions for NFU Mutual to win its inaugural Lipper Fund Award.

Lipper Fund Awards methodology

Lipper Fund Awards are based on the Lipper Leader ratings for Consistent Return. The awards are calculated using a utility function based on the effective return over multiple non-overlapping periods: three-, five-, and ten-year horizons. The calculations over multiple periods ensure all periods in which a fund underperforms the average of its peer group are identified.

In addition, Lipper uses a utility function based on behavioural finance theory to penalise periods of underperformance, with more significant weightings given to excess negative returns. This methodology ensures the winners of the Lipper Fund Awards are funds that have provided superior consistency and relative risk-adjusted returns compared to a group of similar funds.

The winning mutual funds in the U.K.

Twenty single funds from the largest peer groups by assets under management in the U.K. fund universe were honoured for the three-year category during the ceremony.

Baillie Gifford was well represented this year, collecting the Bond GBP Corporates and Equity U.K. Awards for Baillie Gifford Strategic Bond A Inc and Baillie Gifford U.K. Equity Alpha A Inc, respectively. HSBC also picked up two awards in the Equity Emerging Mkts Global and Mixed Asset GBP Balanced categories with HSBC GIF BRIC Equity M1C USD and HSBC Global Strategy Balanced Portfolio Ret X Acc.

Ballie Gifford’s Grant Walker collects the Lipper Award for Bond GBP Corporates. (Henrik Andersen/ Refinitiv)

First-time winners in the U.K. this year included Lindsell Train Japanese Equity A, which won the Japan category, and LF Miton Worldwide Opportunities A Acc, which won in Mixed Asset GBP Flexible.

The popular Equity U.K. Income category was collected for a second year in a row by TB Evenlode Income A Acc, with Seilern clocking up a third consecutive win in the Equity US category with Stryx America USD.

The group awards

For the prestigious group awards, a large group must have at least five equity, five bond, and three mixed-asset portfolios, and a small group must have at least three equity, three bond, and three mixed-asset portfolios.

Exhibit 1. Group award winners and commendations

Category Winner
Bond Small Lord, Abbett & Co.
Bond Large Royal London Asset Management
Equity Small NFU Mutual
Equity Large Baillie Gifford
Mixed Assets Small Momentum Alternative Investments
Mixed Assets Large Liontrust
Overall Small Banque de Luxembourg
Overall Large Royal London Asset Management

 

New faces this year included NFU Mutual, which won the Equity Small Group category and Momentum Alternative Investments which won in Mixed Assets Small.

RLAM’s Phil Reid collects the Lipper Award for Overall Large Group. (Henrik Andersen/ Refinitiv)

The big winners of the evening, however, were Royal London Asset Management (RLAM) and Baillie Gifford. RLAM not only collected a single fund award, but won two group awards for Bond Large Group and the coveted Overall Large Group—a second year of winning twice in the group awards.

Baillie Gifford, in addition to two individual fund awards, also collected the Group Equity Large award.

A full list of the individual and group award winners can be found here.

Refinitiv will see you at the Lipper Fund Awards in 2020

Followers of social media can follow some of the posts of the evening on Twitter, with many members of the audience sharing their views via the hashtag #LipperFundAwards.

Lipper by Refinitiv takes this opportunity to congratulate all the individual sector and group award winners. A full photo gallery of the event is available here and we look forward to seeing you all again for another successful evening in 2020.

Lipper looks forward to welcoming you all in in 2020! (Henrik Andersen/ Refinitiv)

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

Can Absolute Return Turn the Tide in 2019?

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Absolute return (AR) funds generally seek to generate a specified return over a given period. This can be an amount over a rate of interest, such as LIBOR, or an inflation metric. Often, the given period is stated as three years, but terms can be less transparent, such as “market cycle” or another loosely defined rolling period.

The attraction of these types of products for many investors is the potential for lower volatility on returns and the perception they will not produce sustained periods of capital loss.

However, investors must proceed with caution here. These are not guaranteed investments (they are generally market-linked) and they may contain a considerable dispersion of assets.

They may also have complex derivatives, currency and alternatives positions, as well as short exposures. AR funds form a very broad church indeed and require considerable research analysis prior to investing.

High tide was in 2015

According to Lipper data, estimated net flows (ENFs) into AR funds (defined as funds in the Lipper Absolute Return GBP classifications) peaked at slightly more than £12 billion at the end of 2015.

By the end of 2018, the tide had turned almost completely, with these same funds returning -£9.4 billion in ENF. There has been ENF of some -£5 billion in Q1 2019 alone, a sign which doesn’t augur well for the rest of the year.

Recent performance has been stormy

Exhibit 1. below reveals that recent performance of AR products in aggregate has been challenging and very likely the main driver for the huge outflows outlined above.

In what is a damning performance outcome, for the five years to the end of December 2018, one-year LIBOR had bettered or equalled the three Lipper AR categories in this analysis.

Exhibit 1. Relative Performance of Lipper AR Classifications v LIBOR & Mixed Asset Conservative (5-year to March, 31, 2019 in GBP)

Source: Lipper by Refinitiv. Lipper for Investment Management. Past performance does not indicate future performance.

Over that same period, of the 362 funds with a five-year performance history, 122 experienced a negative return. That is more than a third of funds experiencing a loss of capital over five years.

What is behind the AR headwinds?

Potentially, AR funds face a crisis of investor confidence at two ends. Firstly, where equity markets are very buoyant—such as in 2016 and 2017—lower volatility is not as attractive when investors in a single strategy equity fund, for example, are participating fully in a rally.

Secondly, when market returns are negative and AR fund returns are also negative, there is the perception that AR funds are not performing as intended. This was largely the situation in 2018, where correlation across all assets was high and the benefits of asset diversification and more complex strategies less evident.

Exhibit 2. Five-Year Growth & Risk Table (to March 31, 2019 in GBP)

Source: Lipper by Refinitiv, Lipper for Investment Management.

Arguably, we have experienced three years of markets which might not have been most conducive for AR funds. This shouldn’t come as a great surprise. We are in a period of unprecedented market distortion where typical assumptions about the “cycle” are more difficult to evaluate.

However, that will be of little comfort to investors who witnessed the Lipper Global Mixed Asset GBP Conservative classification outperform considerably over the last five years with a comparable risk profile. See Exhibit 2. above.

Sharpe ratio analysis

Looking at a simple Sharpe ratio metric (the average one-year Sharpe ratio [rolling monthly] of all the funds in the Lipper AR GBP categories)—with one-year LIBOR as the risk-free rate—reveals the decline of fund manager ability to outperform over the last five years. See Exhibit 3. below.

Exhibit 3. Average One-Year Sharpe Ratio (rolling monthly) of Funds in Lipper AR GBP Categories.

Source: Lipper by Refinitiv. Lipper for Investment Management.

In aggregate, AR funds have only experienced positive Sharpe ratios from the start of 2017 to the first quarter of 2018.

Has the tide turned?

It is difficult to infer much from short-term performance. However, the first quarter of 2019 has seen a brighter start for AR funds in the UK from a performance, rather than a fund flow, perspective.

There has been a material uptick in the rolling Sharpe ratios, and the average return of AR funds for the period has been 2.1%. Additionally, only 10% of all AR funds have returned a negative amount over the quarter.

It will undoubtedly require a sustained improvement in the fortunes of AR funds before investors return in large numbers. However, for many investors attracted to the “concept” of absolute returns, a rising tide may not be enough to encourage another swim.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

Q1 2019 – A Better Start for Active Funds?

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In 2018, the Pan-European mutual fund industry suffered its first annual outflow in six years, haemorrhaging some €129.2 billion. Performance-wise, the story was similarly dire—the Lipper Global Equity U.S. classification returned -6.3%, Lipper Global Equity Europe ex-U.K. returned -13.0%, and Lipper Global Equity U.K. returned -11.0% (all in GBP).

Exhibit 1. Pan-European Fund Flows (in € billion)

<em>Source: Lipper by Refinitiv.</em>

Source: Lipper by Refinitiv.

Active fund managers in aggregate did not cover themselves in glory in 2018, with only a small percentage of funds within major Lipper classifications beating the best-performing tracker fund in those respective classifications.

Q1 2019 – quicker out of the blocks

Lipper data reveals that fund flows have not reversed their medium-term trend, with estimated net outflows of €58.3 billion for the quarter.

From a performance perspective, however, the markets have been considerably buoyant, with the Lipper Global Equity Europe ex-U.K. classification returning 7.03% for the quarter, Lipper Global Equity U.K. returning 8.87%, and Lipper Global Equity U.S. returning 10.79% (all in GBP).

Active funds performance comparisons

In terms of relative performance, for 2018 passive vehicles secured a comprehensive victory over their active counterparts. Q1 2019, however, has seen a marked improvement in active-fund relative performance against passive peers.

Exhibit 2. U.K. Performance

Source: Lipper by Refinitiv, Lipper for Investment Management

Looking at the graph on the left of Exhibit 2, only 8% of active funds in the Lipper Global Equity U.K classification beat the highest ranked broad-based tracker fund in this classification in 2018. However, this figure has more than tripled in Q1 2019, with 29% of active funds beating the highest-ranked tracker peer.

Exhibit 3. Europe ex-U.K. Performance

Source: Lipper by Refinitiv, Lipper for Investment Management.

Looking at the graph on the left of Exhibit 3, only 14% of active funds in the Lipper Global Equity Europe ex-U.K. classification beat the highest ranked broad-based tracker fund in this classification in 2018. This figure has improved to 22% in this classification for Q1 2019.

Exhibit 4. U.S. Performance

Source: Lipper by Refinitiv, Lipper for Investment Management.

Looking at the graph on the left of Exhibit 4, in perhaps the most difficult classification to outperform—the Lipper Global Equity U.S. classification—24% of active funds beat the highest ranked broad-based tracker fund in 2018. This has improved marginally, to 28%, for Q1 2019.

Opportunity cost remains material

When it comes to performance comparisons, it is important to consider the “opportunity cost” of investing in a passive vehicle (i.e., the potential outperformance of an active fund over a passive peer). This is clearly seen by observing the bar charts to the right of each of the above exhibits.

For example, in Q1 2019, the best-performing active fund in the Lipper Global Equity U.K. classification outperformed the best-performing tracker peer by 7.4 percentage points. In the Lipper Global Equity Europe ex-U.K. classification, this difference was 5.7 percentage points and for the Lipper Global Equity U.S. classification, it was 7.4 percentage points.

The longer-term compounding effects of these differences are even more evident when comparing the performance of active over three and five years.

Can active funds remain buoyant in 2019?

The thesis is that, typically, late-cycle environments precede a rotation out of momentum-biased ETFs and the increasingly expensive large-cap stocks in which they invest, providing fertile ground for active stock pickers.

However, quantitative measures have been distorting the market cycle considerably. Judging where we are in a “normal” market cycle is more art than science, and the complexity today is incalculable.

It is impossible to draw too many inferences into three-month data and there is little comfort overall in the recent market for acolytes of the active-fund management industry. However, if the relative performance trend of Q1 2019 can continue, the story may be very different by year end.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

UK Lipper Leaders: Looking at Volatility Managed Funds–April 2019

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The Volatility Managed sector was launched by the Investment Association (IA) in April 2017. This was undertaken to reflect the increasing popularity of “outcomes”, “solutions”, and “time-horizon” based products.

Performance variation in this classification may be considerable

Generally, these types of funds are multi-asset vehicles which target a specific volatility or risk measure. It is, therefore, a sector which has potentially more vagaries of comparing like-with-like than a more homogeneous classification—even within the standard mixed-asset classifications.

Whilst a fledgling classification, its constituent funds (some 124 or so) were largely pre-existing funds in other IA classifications. The variation in performance outcomes in this sector due to differing asset allocation profiles is potentially considerable. For example, the top performing fund over the three-year period has returned 46.5%, whilst the poorest performing fund over the same time has returned 4.1%.

Lipper Global Classifications are granular

Lipper classifications are highly granular, and for this broad-church IA sector, using Lipper Leaders metrics can assist investors in making relevant like-for-like comparisons. In this single IA classification, there are funds drawn from eight of the Lipper Global Classifications including Mixed Asset GBP Aggressive, Mixed Asset GBP Conservative, Absolute Return GBP Aggressive, and Mixed Asset GBP Flexible, to name a few.

Exhibit One. Top performing IA Volatility Managed funds ranked over 3-years (with 5-year history)

Source: Lipper by Refinitiv, Lipper for Investment Management. Past performance is no indicator of future performance

Source: Lipper by Refinitiv, Lipper for Investment Management. Past performance is no indicator of future performance.

Each of the Lipper Leaders metrics are compiled based on comparisons of funds within their Lipper classifications rather than the IA classification. This effectively applies an additional layer of analysis for investors or analysts who require a high-level appreciation of a fund in this IA sector.

In this month’s table, we see very high Lipper Leaders scores across all the funds and metrics. The clear exception is for the Preservation metric, where all the funds score poorly.

Higher equities content means potentially higher volatility

This should point investors immediately to a high equities content. Indeed, all but one of the funds in this month’s analysis sit in the Lipper Mixed Asset GBP Aggressive classification, where the equities component must be greater than 65% of the portfolio.

This means that the “winners” currently topping the charts in this IA classification are at the riskier end of the investment spectrum where investors could be exposed to considerable drawdowns.

The IA Managed Volatility classification has been created in specific response to an evolving trend in product development – and one which reflects reasonable complexity. Within this IA classification, investors should be especially wary of presuming any broad-based performance characteristics.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.

Event Review: The Refinitiv European Lipper Fund Selector Forum 2019

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On July 3, 2019, Refinitiv hosted the fifth Annual Lipper Fund Selector Forum at Canary Wharf.

At this event—run in partnership with the Chartered Institute of Securities and Investment—Lipper convened nine mutual fund leaders and influencers to share their views with an audience of 180 financial service industry participants drawn from private wealth, gatekeepers, fund selectors, financial advisers, fund managers and trade journalists.

After a welcome by Leon Saunders Calvert, Head of Sustainable Investing & Fund Ratings at Refinitiv, Jake Moeller, Head of Lipper UK and Ireland Research, hosted three panels covering a wide range of topics relevant to the European mutual fund industry.

Leon Saunders Calvert welcomes the audience.

Leon Saunders Calvert welcomes the audience.

The State of the European Mutual Funds Industry

Detlef Glow presented his popular overview of the current state of the European mutual funds industry, outlining the current trends in flows and products following a state of volatile and challenging markets in 2018.

You can access the most recent Lipper European Fund Flows report on which this presentation was based here.

Detlef Glow presents on Lipper fund trends.

Illustrating his presentation with Lipper data, Detlef revealed that despite a respite in international markets, European mutual fund investors were still investing with considerable risk aversion.

Future Directions for Fund Selection & Funds-Based Portfolio Construction

Jake Moeller moderated a panel of fund selectors discussing the changing nature and increasing prominence of this role following the recent high-profile travails faced by Woodford Investment Management.

Jake Moeller interview (l-r) Richard Philbin, Victoria Hasler, Bish Limbu.

Jake Moeller interview (l-r) Richard Philbin, Victoria Hasler, Bish Limbu.

Panelists discussed their selection process, what makes a good fund investment, and how they are going to evolve to remain relevant in a changing product market.

The panelists were:

The Diversity Dividend

Jake Moeller moderated a panel on the importance of workplace diversity. As this issue has become increasingly prominent, the asset management industry has been indicted as one of several industries suffering from a lack of diversity in its workforce.

Jake Moeller interviews (l-r) Bev Shah, Selena Tyler, Abbie Llewellyn-Waters

Jake Moeller interviews (l-r) Bev Shah, Selena Tyler, Abbie Llewellyn-Waters

This panel discussed the various initiatives that the asset management industry is undertaking to improve diversity and outlined how improved levels of workplace diversity benefit shareholders and result in a more effective workplace.

The panelists were:

ESG and the Funds Distribution Chain

Jake Moeller moderated a panel which examined the importance of ESG criteria for investors and participants in the mutual fund industry.

Jake Moeller interviews (l-r) Mona Shah, Chris Welsford, Craig Bonthron

Jake Moeller interviews (l-r) Mona Shah, Chris Welsford, Craig Bonthron

The panel considered the influence of ESG throughout the mutual fund value chain from product manufacturer, gatekeeper, and fund distributor and outlined how ESG criteria are able to add value for end investors without compromising potential returns.

The panelists were:

Concluding remarks

Refinitiv’s Lipper marque holds considerable gravitas in the mutual fund industry. This is reflected by the number of high-level industry participants who are willing to share their views and thought leadership expertise for the wider benefit of the asset management industry.

A full house followed proceedings closely

A full house followed proceedings closely.

The Lipper Fund Selector Forum has established itself as a flagship industry events which provides a showcase of Refinitiv’s skill in engaging the entire mutual fund value chain.

The popularity of the event was also reflected in the social media coverage on the Twitter hashtag #LipperFSF19 and a number of videos of the panel sessions will soon be available via this website.

We look forward to welcoming you and your clients again in 2020.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.

UK Lipper Leaders: Looking at Flexible Investment Funds–May 2019

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The Investment Association (IA) Flexible Investment sector came about in 2012 as the Association of British Insurers (ABI) and IA sought to further harmonise their classification systems.

The Flexible Investment sector was largely borne from the former IA Active Managed classification. Today there are some 160 funds in this classification.

This is a dynamic classification

This is a sector where for investors the clue is in the name. It is one where there is no minimum equity, fixed income or cash requirement and it has become increasingly popular for fund managers who want a “go anywhere” mandate.

This poses some difficulty for investors when trying to make like-with-like comparison. Most of these funds in this classification are mixed-asset mandates (although mandates run from conservative portfolios through to aggressive) and there are also several equity-only products.

Considerable performance variation is possible

It should not surprise investors then that the variation in performance outcomes in this sector due to differing asset allocation profiles is potentially considerable.

For example, the top performing fund over the three-year period to the end of May 2019 has returned 57.3%, whilst the poorest performing fund over the same time has returned a paltry 0.3%.

Exhibit One. Top performing IA Flexible Investment funds ranked over 3-years (with 5-year history – to May 2019)

Source: Lipper for Investment Management, Lipper by Refinitiv. Past performance is not a reliable indicator of future performance.

Each of the Lipper Leaders metrics are compiled based on comparisons of funds within their Lipper classifications rather than the IA classification and our classifications are based on the actual asset allocation of the fund.

Lipper Leaders help distill a diverse classification

In this single IA classification for example, there are 50 funds from the Lipper Mixed Asset GBP Aggressive classification, 27 funds drawn from the Lipper Global Equities classification and 16 funds from the Lipper Mixed Asset GBP Balanced classification. Where there is evidence of genuinely flexible mandates these are placed into Lipper Flexible classifications (currently around 30 funds).

In this month’s table, we see quite a mixed bag of results which reflects the considerable style variation in these portfolios (although all ten funds contain a high equity content). Typically, this makes maintaining a high Preservation and Consistent Return more challenging.

Some funds have performed strongly across all Lipper Leader metrics

Remember that we are ranking these funds based on 3-year returns. A low Consistent Return metric such as that exhibited by Sentinel, Ruffer and M&G suggests that there have been higher levels of shorter-term volatility in these funds.

It is worth noting that Liontrust Sustainable Future Absolute Growth 2 Acc has scored top marks across all four metrics (BMO Multi-Manager Investment Trust C Acc and LF Miton Worldwide Opportunities B Acc only fall one short). It is quite a feat to have achieved such strong scores across a five-year period.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.

How Should Investors View a Mutual Fund Suspension?

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The recent announcement that one of the best-known fund managers in the U.K., Neil Woodford, has had the suspension of his flagship LF Woodford Equity Income Fund extended may be unwelcome to those investors who currently hold units in the fund.

Why invest in mutual funds in the first place?

Mutual funds are a popular form of collective investment which allow investors to own a proportion of an instantly diversified pool of investments held by an independent custodian.

Many investors do not have the time or resources to build up a researched share portfolio and rightly believe that they might be exposed to too much stock-specific risk. For them, the mutual fund solution (in either an active or passive approach) might be the best solution.

The instant diversification and general subsequent reduction in unsystematic risk of a mutual fund is ostensibly the greatest benefit. Investors are, however, still potentially exposed to other risks such as market, liquidity, and style risk.

Fund closures such as Woodford’s are unusual and rarely garner so much publicity. The noise surrounding this closure is amplified by Woodford’s reputation, track record, and the popularity of this fund.

However, it is worth reminding ourselves how mutual funds are designed and the built-in mechanisms which afford some investor protection.

What causes a suspension?

The travails of Woodford’s fund have been well documented, but any mutual fund may experience temporary suspensions. Where sustained and material outflows disrupt the day-to-day running of the fund to the detriment of remaining investors, suspension is an important defence mechanism.

Most mutual funds can meet normal client redemptions—a proportion of cash in the portfolio is often sufficient. Where there are many redemptions, they must be funded through the sale of securities in the portfolio.

Is portfolio management compromised?

If the portfolio is constructed of, say liquid large-cap stocks, this should not be a problem. Where the portfolio contains less liquid investments, it can potentially force the fund manager to sell these assets while simultaneously reducing their prices, further compounding performance issues.

Where a fund manager is exhausting liquid stocks to fund redemptions, this leaves an increasing proportion of illiquid stocks in the portfolio. The fund’s composition and style bias could be distorted considerably. It can also force a fund to potentially breach its mandate or regulatory requirements. A suspension prevents this problem amplifying.

Mutual fund investors—equality is important

Sometimes mutual funds will discourage large individual redemptions from a fund via a mechanism called a dilution levy—a charge applied to that specific client rather than across the mutual fund. A temporary suspension is another mechanism which will protect the investors who remain in a fund from the trading costs incurred by those who wish to leave. This is important when many investors are selling.

Why suspend?

A suspension gives a fund manager the opportunity to potentially restructure the portfolio without having to meet redemptions by selling underlying assets at a loss. It also allows a fund manager time to reassure investors and break a bad news cycle if that is also a contributory factor.

Importantly, it potentially allows the natural forces of the market to increase the value of constituent securities, addressing the most likely cause of the redemptions in the first place.

Many investors in the U.K. will be familiar with the temporary suspensions of funds exposed to commercial property prior to the Brexit vote in 2016. Most of those funds were trading normally within months and performance has since stabilised.

A suspension is essentially a “time out” for a fund manager to consider options for remaining investors and should not necessarily be a reason to panic.

Undoubtedly, any fund manager who is operating through a fund suspension faces challenges and there is no guarantee that investor sentiment, or the portfolio, can be turned around.

Suspensions are not ideal, but better than chaos

Investors should take some comfort that the mechanisms of a mutual fund (including suspension) aim to provide a chance for a fund to change its fortunes.

The wording of the specific announcement referred to above states that the extension of the Woodford fund suspension provides “a realistic amount of time for Woodford to complete a measured and orderly re-positioning of the Fund’s portfolio of assets ensuring that there is adequate liquidity whilst preserving or realising the value of the assets“.

It also concludes that this “would represent the best outcome in terms of value, time and fair treatment for all investors“.

Is there any silver lining?

The wording of the suspension extension announcement seems appropriate and appears to be in the best interests of remaining investors.

The fortunes of a suspended fund are not predictable. In the unusual and worst case where a mutual fund no longer remains viable, its structure and a suspension allow for the orderly unwinding of its assets. This at least gives remaining investors the likelihood of recouping some capital.

There will rightly be much more debate and analysis about how and why we got here, and it is very hard to provide comfort to any investor currently trapped in a suspended fund. However, a mutual fund structure affords more protection to an investor than if they were exposed materially to a single stock which went bust or a bond which defaulted.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. This work is the opinion of the author, not Refinitiv. The author does not own shares in this investment.


UK Lipper Leaders: Looking at China/ Greater China Funds–June 2019

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China has rarely been out of the news since its “Black Monday” correction in 2015 caused ripples in the global economy. More recently, the Trump Administration’s ongoing trade war with the country has amplified volatility in equity markets generally and China-based securities in particular.

China volatility higher than other classifications

Looking at the average of the monthly rolling three-month volatility of various IA fund classifications (over five years to June 2019), the IA China/Greater China classification has been 46% more volatile than the IA North America classification, 62% more volatile than the IA UK All Companies classification, and 216% more volatile than the IA Mixed Investment 40-85% Shares classification.

In addition to this higher level of volatility, investors wishing to obtain exposure to China must also consider the unique complexities of the different regional markets. Hong Kong “H-shares” have very different liquidity characteristics from those listed on the Shanghai and the Shenzhen Stock Exchange (“A-shares”), and these differences need to be accounted for.

Exhibit One. Top performing IA China/ Greater China Investment funds ranked over 3-years (with 5-year history – to June 2019)

Source: Lipper by Refinitiv, Lipper for Investment Management. Past performance is not a reliable indicator of future performance.

Plenty of choice, but beware performance variability…

There are now nearly 40 funds in the IA China/Greater China classification, which gives investors a reasonably deep universe of choice for the region (interestingly there have only been four fund launches since Black Monday), but variability of performance is considerable. In the three years to the end of June 2019, there has been a difference of 49.8 percentage points between the best and worst performing funds.

Exhibit Two. Three-month standard deviation of selected IA classifications (rolling monthly) for five-years to July 2019

Source: Lipper by Refinitiv, Lipper for Investment Management.

Look for strong Consistent Return and Total Return scores

Importantly, there are several funds in this classification which exhibit strong Consistent Return Lipper Leaders metrics over five years. A good Consistent Return score combined with a strong Total Return score is a robust signal of fund manager skill. Good consistency of performance is even more credible when markets (such as China) have exhibited more volatility.

It is a dangerous investment strategy to select funds on past performance alone. Chasing returns alone is rarely a successful strategy. In this instance, the poor Preservation scores that we see across the board for five years serve as a stark reminder that the risk of losing capital in this region is considerable. The loss in one fund of nearly 10% in the year to June 2019 despite good three-year performance is revealing.

China is a complex, volatile region. Don’t rely on short-term metrics

However, we are examining five-year Lipper Leaders metrics which allow for the “washing out” of some shorter-term volatility. The funds in this month’s table should warrant some further investigation as a potential long-term investment.

The China/Greater China classification is one of considerable opportunity, but also complexity and volatility. An active fund manager with strong five-year Lipper Leaders scores is probably a decent place to start for any investor considering a fund in this region.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.

Active Funds: Making Up Some Ground in 1H 2019

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2018 was a difficult year for the European mutual fund industry– active and passive vehicles alike. The market witnessed poor performance across most asset classes and outflows of €129.2 billion. This constituted the first annual outflow in Europe after six consecutive years of net inflows.

For 1H 2019, there has been a turnaround with the industry enjoying net inflows of €41.3 billion and performance data improving.

Figure 1. Pan European Estimated Net Flows 2004 to 1H2019 (in € billion)

European Fund Flow and Fund Market Review H1 2019

Source: Lipper by Refinitiv.

Over the same time period, the Lipper Global Equities ex UK classification has returned 14.3%, Lipper UK Equities 17.9%, and Lipper UK Equities 12.6% (in local currency).

Figure 2. Lipper Global Equity Fund Classifications 1H 2019 Performance (local currency)

Source: Lipper by Refinitiv. Lipper for Investment Management

Source: Lipper by Refinitiv. Lipper for Investment Management.

 

Active funds too, have begun to show signs of improving performance relative to their passive peers after a sustained period of relative underperformance.

UK equity performance

At the end of 2018, only 14% of active funds in the Lipper UK Equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months.

For three months of Q1 2019, this figure had improved to 29% and for 1H 2019, the figure now stands at 40%.

Figure 3. UK Performance

Source: Lipper by Refinitiv, Lipper for Investment Management.

European – ex UK equity performance

At the end of 2018, only 13% of active funds in the Lipper European Equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months.

For three months of Q1 2019, this figure had improved to 22% and for 1H 2019, the figure now stands at 26%.

Figure 4. Europe ex-UK Performance

Lipper for Investment Management

Source: Lipper for Investment Management. Lipper for Investment Management.

US equity performance

At the end of 2018, 26% of active funds in the Lipper US equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months.

For three months of Q1 2019, this figure had improved to 28% and for 1H 2019, the figure now stands at 30%.

Figure 4. US Performance

Source: Lipper for Investment Management. Lipper for Investment Management.

Longer periods improve the numbers, but not by much

Advocates of passive investing will not feel threatened by these short-term numbers, despite the improvement for 1H 2019.

If we look at the three and five-year data (to the end of 2018) on each of the above left-hand side graphs, in aggregate for each of the three classifications above, investors statistically had a better chance of outperforming if they had chosen a tracker fund.

Opportunity cost remains material

That is not to say those investors would be better off. When it comes to performance comparisons, it is important to consider the “opportunity cost” of not investing in an active fund (i.e., the potential outperformance of a fund over an index). Often this can be considerable.

The blue bars in each of the graphs on the right-hand side reveal this. For 1H 2019, the best-performing active fund in the Lipper UK Equities classification outperformed the highest-ranking broad-based tracker by 4.6% percentage points.

In the Europe ex UK classification, over the same six-month period, that figure is 20.5% and for US equities, 9.6% points—quite decent out-performance if indeed you were able to choose those winning funds in advance.

2019 – Improving fortunes for active?

The thesis is that typically, late-cycle environments precede a rotation out of momentum-biased ETFs and the increasingly expensive large-cap stocks in which they invest, providing fertile ground for active stock pickers.

1H 2019 has shown a marked improvement in the relative performance of active funds against their passive peers. Although coming off a low base, perhaps there are signs that we are finally beginning to enter that period in which the market is more conducive for active funds in aggregate.

There is considerable noise in the market and judging where we are in the cycle is not easy. Active fund performance has a lot of ground to make up. It will be interesting to watch their fortunes throughout the rest of 2019.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Views expressed here are those of the author, not necessarily Refinitiv. Past performance is not a reliable indicator of future performance.

UK Lipper Leaders: Looking at Targeted Absolute Return Funds–July 2019

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Do you remember when Targeted Absolute Return (TAR) funds were the darling of the U.K. fund industry? Lipper estimates revealed that in 2016, there were nearly £6 billion of net inflows into this classification, 2017 saw a further £2.6 billion and 2018, £1.6 billion. However, in the year to July 2019, there have been nearly £2.6 billion of outflows.

TAR funds are a nebulous collection and pose some potential pitfalls for the unwary investor. Many will be drawn to the classification to dampen volatility, some to the attraction of positive returns in all types of markets, others even as a cash proxy.

TAR funds form a very broad church

To illustrate the diversity here there are 26 of the more granular Lipper fund classifications within the Investment Association (IA) classification. These include mixed asset funds, global bond funds, multi-strategy vehicles and long/ short vehicles to name but a few.

Exhibit One. Top performing IA Targeted Absolute Return Funds ranked over 3-years (with 5-year history – to July 2019)

Source: Lipper by Refinitiv. Lipper for Investment Management. Past returns are not a reliable indicator of future returns.

Source: Lipper by Refinitiv. Lipper for Investment Management. Past returns are not a reliable indicator of future returns.

The IA themselves recognise the potential variation in product strategy and complexity by qualifying their definition of the classification with cautious footnotes and the incorporation of a twelve-month screen. This acknowledges the “wide expectation” among consumers and advisers that funds in the TAR sector will aim to produce positive returns after twelve months.

Many TAR funds have not met investor expectations

2018 was a tough year for all markets, the IA TAR classification returned -2.7% which is better than the Lipper Global Equity return of -6.8% (in GBP) over the same period. Year-to-July 2019 as markets have rallied, 19.4% (global equities) v 3.5% (TAR) may not be quite as satisfying an outcome. Therefore, it is likely the failure of many of these funds to meet the expectations of their investors that has caused their fall in popularity.

Looking at our table, we can see considerable performance variation – consider the extremes just in the three-month data of our table. This reflects portfolio composition differences. For investors grappling with this broad church of funds, Lipper Leader scores (based on the granular Lipper Global Classifications) can offer some assistance.

Preservation of capital is key

For investors attracted to this classification for the preservation of capital, the Preservation score is obviously most significant and funds with a good score here have shown they have protected capital against their peers over the last five years.

However, for investors who are likely to suffer from “market rally envy”, the combination of a strong Preservation and Total Return scores implies that not only is the fund meeting the qualifications set by the IA in this classification, they have not forgone upside whilst doing so. Throw in a good Consistent Return score and you are really in the sweet spot.

Be sure to lift the bonnet

The IA TAR sector requires considerable analysis. It is far from a homogeneous sector and this is reflected by the considerable variation we see in performance outcomes. Investors really need to lift the bonnet here. There are some great funds in the classification who have stood the test of time and delivered what investors might expect. Plenty too which haven’t.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.

UK Lipper Leaders: Looking at Mixed 20%-60% Shares–September 2019

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Investors and advisers will remember the old IA Cautious Managed sector as it was to the end of 2011. The collapse of the ill-feted Arch Cru Fund in 2009 (which was classified in that sector), may have been a contributor to the desire for the IA to make the managed sector names less prescriptive and more informative for investors. This certainly is the case for the Mixed 20%-60% Shares classification.

This is a popular home for investors seeking broad exposure

The IA Mixed Investments 20-60% Shares classification as it is now known remains a popular home for investors who seek a broadly mixed exposure of assets with both an eye on capital growth and capital preservation. The sector’s importance is reflected in its considerable size with over £53 billion of assets (as at September 30, 2019).

There is a considerable risk difference in funds at either end of the asset allocation spectrum in this classification. This is reflected in the variation of returns: Over the three years to 30 September 2019, the best performing fund returned 30.8% whilst poorest performer over the same period returned -0.9% against the sector return of 13.7%.

Exhibit One. Top performing IA Mixed 20%-60% Shares Funds ranked over 3-years (with 5-year history – to September 2019)

Source: Lipper by Refinitiv. Lipper for Investment Management. Past returns are not a reliable indicator of future returns.

Source: Lipper by Refinitiv. Lipper for Investment Management. Past returns are not a reliable indicator of future returns.

This is a favourite classification of mine. There is a good selection of well-respected funds here many of which can form a solid foundation for a diversified investment portfolio. The key Lipper Leader metrics here are Consistent Return matched with a decent Preservation metric.

Kames Diversified Monthly Income Fund scores full marks in each Lipper Leader metric (this is very unusual) and there are strong offerings from RLAM, Liontrust, Seneca and M&G.

Most funds are currently at the higher end of permissible equities exposure

It is worth noting here that most of the funds in this month’s table are at the higher end of the permissible equity allocation. The average split for these 10 funds is over 50% equity. Investors should always be checking fact sheets to see how their funds asset allocations compare.

On this basis, I think the IA was right to do away with the “cautious” label. Certainly, a portfolio with 50% equities could be quite volatile, although the strong Preservation metrics for these 10 funds, suggest they are doing something right across their asset allocation strategies.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.

Fund Manager Briefing: Artemis US Select Fund–Cormac Weldon

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Artemis US Select Fund is a dynamic, multi-layered US equities proposition which is presided over by the highly experienced Cormac Weldon. His move to Artemis in 2014 was a coup for the firm and seems to be a good fit for the fund manager and his team, who have bedded down well in the Artemis environment.

People

Weldon is, rightly, a respected US equities fund manager. His background in accounting—for me, one of the best backgrounds for a fund manager—gives him the skills to navigate financial statements, which are vital for good stock picking. Furthermore, his entire career has been based around the analysis of US equities, so his pedigree for this region is compelling.

Not only does Weldon have strong analytical skills, he is also a fund manager who is approachable, affable, and without hubris. These “soft” skills are perhaps why he engenders such loyalty in his team and can avoid being cast as a “superstar” fund manager.

Figure 1. % Growth of Artemis US Select Fund V Lipper Global Equity US & S&P (from launch to October 31, 2019 in GBP)

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance.

There is a genuine desire on Weldon’s part to establish a strong, collegiate environment without diluting his accountability as the ultimate arbiter of portfolio construction. “There is a well understood framework that the analyst lays out their thesis,” stated Weldon. “But where there is conflicting evidence to their view, debate moves back to the price target and I will make the call”.

This team is also a key to the success of this fund. It is compact, with key members having worked with Weldon since his early Threadneedle days, but there is also a supportive blend of hungry young analysts.

It is fair to say you are buying a reasonable amount of key-person risk when you invest in this fund. However, active fund advocates will appreciate this, and it underpins Artemis’s values as a fund house.

Process

This fund has a multi-layered process which Artemis call “Up/ Down” (bottom-up with a top-down overlay in fund-selector speak). This may not suit valuation purists, but I think it is a process which suits US equities and active stock picking.

Given that we appear to be in a late-cycle environment and the markets are dominated by passive flows, this is a process which may come into further favour in the next year or two.

Figure 2. Quartile Positioning of Artemis US Select Fund within Lipper Global Equity US Classification (3 years to October 31, 2019 in GBP, funds registered for sale in UK only) 

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance.

Valuations constitute a strong foundation in this fund process and sensible target prices for stocks are established and contribute to longer-term views. These then help underpin the sell discipline for the fund.

“It starts with the fundamentals of the business”, stated Weldon. “The key is relating news flow, earnings or competitor data back to our thesis”. He cites Lowes as an example. “It is an important holding for us” he said. “So when Home Depot reported the day before, we made sure we understood the potential impact of this on our position”.

Portfolio

This portfolio is a stock picker’s delight. It has strong active share and robust tracking error metrics, and as is typical with 40-60 stocks, it is full of conviction ideas. It is characterised by meaningful active positions and a preparedness to use the full risk allocation to an individual stock.

Figure 3. Lipper Leaders Scores for Artemis US Select Fund (to October 31, 2019 for UK investors)

Source: Lipper for Investment Management. Lipper Leader scores do not predict future performance outcomes.

Ostensibly style agnostic, the process of this fund can and does lead to substantial sector biases in the portfolio (which is currently underweight to technology and industrials) which investors need to understand.

The portfolio however, is also subject to a rigorous risk monitoring and oversight process with the established Artemis protocols around dealing, daily risk reporting, and investment committee supervision applied to the fund.

Performance

The fund has a compelling track record since its inception with Artemis (see Figure 1. above). Weldon also brought with him from Threadneedle a longer strong track record. Within the Lipper Global US Equities classification, the fund sits comfortably in the first quartile (see Figure 2. above). Given the fund’s large cap bias in one of the most efficient global equities markets, this is a feat.

When considering risk-adjusted metrics, the fund also holds up well. The fund has a top Lipper Leader score of 5 for Consistent Return over five years, (see Figure 3. above) and has strong Treynor and Sharpe ratios over the same time period.

The fund also sits on the border of the preferred North-West quadrant from a risk/ return perspective (see Figure 4. below)

Figure 4. Three year risk/ return chart of Artemis US Select within Lipper US Equities classification (funds registered for sale in UK only)

Source: Lipper for Investment Management, Refinitiv.

When a stock is not performing strongly Weldon remains objective. “Planet Fitness got pulled back and was being shorted, on the basis of the profitability of an individual gym”, he stated. “Even as the stock underperformed, we rigorously went through the bear case and decided it was invalid, buying some more before it reported” (see Figure 5. below).

There have been periods where the fund has struggled relatively. In 2016, the fund was underweight financials—which performed well—and it missed out on some of the mid-cap momentum which drove returns.

Figure 5. Planet Fitness Share Price Year to Date 2019 (to November 22, 2019)

Source: Eikon by Refinitiv.

“As we recognised that Donald Trump may get elected US President, we realised that we would need a different portfolio. We did however manage to pick up our bank exposure later in the year”, Weldon said. The fund has subsequently been able to reassert its performance profile.

Conclusion

Artemis US Select Fund should tick a lot of boxes for investors seeking an active US equities proposition. The fund has a stable and consistent style and a track record which is enviable.

In what is typically one of the hardest equities markets to navigate, you have a small, nimble, but well qualified team, led by a fund manager with a strong pedigree who is prepared to back himself.

 

Cormac Weldon spoke with Jake Moeller, Head of Lipper UK and Ireland Research at Refinitiv, in London on November 22, 2019.

About Cormac Weldon

Cormac Weldon, Artemis.

Cormac Weldon, Artemis.

Cormac Weldon is head of the US team and has managed Artemis’ US Equity, US Select and US Smaller Companies (Oeic and Sicav) funds since launch. He studied accounting and finance at Dublin City University, graduating in 1987 and joining KPMG.

After moving to Provident Mutual where he was a US equity analyst, Cormac spent two years as a fund manager for the British Gas Pension Fund.

He joined Threadneedle in 1997, later becoming head of the North America team and the lead manager of three of its US funds. He moved to Artemis in 2014.

 

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. The author does not own shares in this investment.

 

Lipper Alpha Expert Forum 2019 Review: Opportunities in Funds Management

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On November 7, 2019 Refinitiv hosted the fourteenth annual Lipper Alpha Expert Forum in Canary Wharf, London.

Held in conjunction with the Chartered Institute of Securities and Investment–the leading professional investment body in the U.K.– we welcomed some of the preeminent fund industry executives in Europe to share their views on key developments and challenges facing the industry today.

The Lipper Alpha Expert Forum was opened by George Littlejohn from the CISI and Refintiv’s Head of Sustainable Investing & Lipper Fund Analytics– Leon Saunders Calvert.

Refinitiv's Leon Saunders Calvert opens proceedings

Refinitiv’s Leon Saunders Calvert opens proceedings.

The Fund Flow Trends of 2019

Detlef Glow, Head of Lipper EMEA Research outlined the major trends revealed by fund flows throughout 2019.

Lipper’s Detlef Glow

His key findings (all figures to end of Q3) were:

  • Assets under management (AUM) in the Pan-European asset management stood at nearly €12 billion up from €10 billion at the end of 2018.
  • Active funds constituted 84% of total AUM, ETFs, 7% and index trackers 9%
  • Net inflows for 2019 stood at €200 billion with index trackers constituting 32% of flows, ETFs 31% and active funds 37%
  • Equity global (+€55 billion) was the bestselling Lipper classification. Equity Europe)-€21 billion) the worst
  • Blackrock maintain its dominance as the largest fund promoter by AUM with over €900 billion, followed by Amundi (€400 billion) and UBS (€340 billion)

Macro and Markets – The Outlook for 2020

Jake Moeller, head of Lipper UK & Ireland Research at Refinitiv hosted the 2020 investment strategy panel. The panelists were:

(l-r) Jake Moeller,  Maria Municchi, Patrick Armstrong, Andrew Milligan

The key findings by the panel were:

  • Central bank policy continues to be the major driver for global markets – this has driven risk aversion and volatility
  • Low growth and low inflation are established and underpin the investment environment
  • Brexit and US/ China trade war are still affecting sentiment. The US/ China situation may not be resolvable – this will create a stagflationary headwind. Regional investing will become more prevalent
  • Focus will move from equity market to bond volatility, but potentially low currency volatility may remain
  • Portfolio exposures were still “pro-risk” with the panellists liking equities – particularly Japan and Europe. Some value in bank and EM bonds and the long end of US treasuries

The Enduring Power of Passive and ETFs

Detlef Glow, head of Lipper EMEA Research at Refinitiv convened the ETF panel. The panelists were:

(l-r) Detlef Glow, MJ Lytle, Hector McNeil, David Lake

The key findings of the panel were:

  • ETFs should be thought of as a wrapper and are comparable to digital technology over analague technology (mutual fund structure)
  • Active ETFs will become more popular in the next few years
  • Firms are potentially in anti-competitive pricing with multiple charging structures on similar products
  • Concentration in the ETF market is potentially causing a barrier to entry for new entrants
  • Fixed income is very complicated with many sub-asset classes so indexing in this space is challenging and baskets may be too simple
  • ETFs are a democratic structure. Institutional investors and retail investors buy the same thing – investors need to shop around to get the full benefit of available exposures

Opportunities & Challenges Facing Fund Managers

Jake Moeller, head of Lipper UK & Ireland Research at Refinitiv hosted the challenges and opportunities for fund groups. The panelists were:

(l-r) Jake Moeller, Jasper Berens, Dawn Kendall, Stephen Jones

The key findings of the panel were:

  • The Woodford saga potentially will prevent new entrants from coming to market because of greater regulatory scrutiny
  • The Woodford saga highlights a deficiency in the way funds are marketed and investor expectations
  • Fund gatekeepers and fund groups need to work together to create better fund transparency
  • Intermediaries and consumers are changing the way they consume information. Fund groups need to adapt to this
  • Active fund groups need to adapt to pricing pressures and prove they can outperform passive vehicles
  • ESG will permeate all aspects of future product development as data and standards become better aligned
  • Technology will drive reforms in back office services and help reduce costs
  • Pensions reform and demographic changes offer fund groups excellent opportunities if they can create the correct product suite

Expert Opinions, Expert Audience

All the sessions at the Lipper Alpha Expert Forum experienced a high level of audience engagement, with lively questions and debate contributing to the success of the event. The three hours of Continuing Professional Development credit allocated to the event by CISI were well earned.

An audience member asks a question.

A live “Twitter Wall” proved popular during the event, with considerable activity posted via #LAEF2019.

Refinitiv is proud that Lipper can assemble such accomplished panellists to the Lipper Alpha Expert Forum. Our considerable gratitude is extended for their generosity and thought leadership. It is vital to the industry that their experience and knowledge be shared.

We look forward to welcoming you all back to the Lipper Alpha Expert Forum in 2020!

 

The Panellists

Patrick Armstrong

Patrick is CIO and co-heads Plurimi Investment Management. Previously he was CIO at Armstrong Investment Managers, co-head of Insight Investment’s Multi-Asset Group and Director at UBS. Patrick has an MBA from the Rotman School of Management and is a CFA Charterholder.

 

 

Andrew Milligan

Andrew Milligan OBE joined Standard Life Investments (now Aberdeen Standard Investments) in 2000 as Global Investment Strategist before being appointed Head of Global Strategy in January 2001. Prior to that, he was employed by HM Treasury, followed by Lloyds Bank where he was an Economic Adviser, and Smith New Court as an International Economist. In 1994, he was appointed Chief Economist with New Japan Securities Europe. He then moved to Morley Fund Management (now Aviva Investors) in 1996 to take up the position of Director of Economic Research & Business Risk.

 

Maria Municchi

Maria Municchi joined M&G in 2009 and is a member of the Multi Asset team and the Positive Impact team. She is the fund manager of the M&G Sustainable Multi Asset Fund and also deputy fund manager of the M&G Episode Income Fund. Before joining M&G, Maria worked at Barings and UBS Asset Management. She has an MSc in international management and finance and is a CFA charterholder.

 

 

MJ Lytle

Michael John (“MJ”) Lytle is CEO of Tabula Investment Management. Previously MJ was a founding partner in Source, an investment manager focused on the creation and distribution of exchange traded funds, including a partnership with PIMCO to create and distribute a range of fixed income ETFs.  Source was purchased by Invesco in 2017.  Prior to Source, MJ spent 18 years at Morgan Stanley with a variety of roles across corporate finance, capital markets origination, trading, sales, equity, fixed Income, private wealth and technology strategy.  MJ has a BA in Economics and Government from Dartmouth College with further studies at the London School of Economics.

Hector McNeil

Hector is a veteran of the ETF industry, establishing Susquehanna’s ETF desk in Europe, before co-founding ETF Securities in 2005. In 2011, Hector founded Boost ETP with Nik which, in 2014, became WisdomTree Europe with Hector as co-CEO. Following the buyout of BoostETP by WisdomTree Europe in 2016, Hector stepped down as co-CEO to establish HANetf, with business partner Nik Bienkowski.

 

 

David Lake

David Lake joined Lyxor in 2017 from Source Asset Management, where he was Head of Sales, UK & Ireland since 2014. Prior to that, he was Head of Structured Product Sales, UK & Ireland at RBS Investment Bank from 2008 until 2013, after working as Head of Listed Product Sales UK, Ireland & Nordics for SG Corporate and Investment Banking since 2002. Before that, David held several positions as corporate finance analyst and investment analyst. He holds a BA in Philosophy and Mathematics (Honors) and a MSC in Mathematics from King’s College London.

 

Dawn Kendall

Dawn Kendall is the Managing Director of SQN Asset Management Ltd, the UK manager of the SQN Secured Income Fund. Previously Dawn was a Partner, Portfolio Manager and Member of the Executive Committee at TwentyFour Asset Management. She started her career at SG Warburg (now UBS) and has since held senior investment and management positions at Newton, Axa (Architas), and Investec Wealth & Investment.  Her primary specialism is management of fixed income funds with an extensive background in investment trusts, structured finance, product development, marketing, risk, derivatives and hedge funds.  She has a degree in Law and an MBA.

Jasper Berens

Jasper joined Artemis in October 2018 as Head of distribution, a partner and member of the executive. Jasper worked for JP Morgan Asset Management, latterly as Country Head (UK), for 20 years until March 2018. He is a member of the Financial Capability Board. He holds a BA(Hons) in History from the University of Bristol.

 

 

Stephen Jones

Stephen Jones, Chief Investment Officer Aegon Asset Management Europe and interim CEO of Kames Capital. He is responsible for investment performance, overseeing strategy and leading Kames Capital’s investment teams. Stephen also works with clients to help ensure Kames Capital is meeting its investment performance and service requirements. Stephen joined us in 2002 from Britannic Asset Management where he was an investment manager. Prior to that, he was an Executive Director and Head of Debt Syndication at Greenwich NatWest. Stephen studied Law and Economics at the University of Newcastle and has over 25 years’ industry experience.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

 

Active UK Funds: Improving against Passive Peers–Q3 2019

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To Q3 2019 there remains a turnaround (for both the active and the passive industry) from the poor 2018 it endured with pan-European net inflows of €200 billion. Performance data also remain supportive. To Q3 2019, the Lipper Global Equities ex UK classification has returned 20.1%, Lipper UK Equities 13.4%, and Lipper US Equities 22.4% (all in GBP).

Active funds in the Lipper UK classification, have begun to show signs of improving performance relative to their passive peers after a sustained period of relative underperformance. Where there had been signs of similar improvement across the board to 1H 2019, active funds in the US and Europe classifications have struggled in Q3.

UK equity performance

At the end of 2018, only 14% of active funds in the Lipper UK Equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months.

For three months of Q1 2019, this figure had improved to 29%, for 1H 2019, 40% and to Q3 2019, this figure now stands at 52%.

Figure 1. UK Performance

Source: Lipper for Investment Management, Refinitiv

Source: Lipper for Investment Management, Refinitiv

European – ex UK equity performance

Active funds in the Lipper Europe ex UK equity classification have not fared as well. At the end of 2018, only 13% of active funds in the Lipper European Equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months.

For three months of Q1 2019, this figure had improved to 22% and for 1H 2019, 26%. To the end of Q3 2019, active funds have fallen back to only 19% outperforming.

Figure 2. Europe ex-UK Performance

Source: Lipper for Investment Management, Refinitiv

Source: Lipper for Investment Management, Refinitiv.

 

US equity performance

Active funds in the Lipper US equity classification have also retreated. At the end of 2018, 26% of active funds in the Lipper US equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months.

For three months of Q1 2019, this figure had improved to 28%, and for 1H 2019, 30%. To the end of Q3 2019 the figure has fallen back to 19% – perhaps confirming the commonly held thesis that the US market is the hardest to beat.

Figure 3. US Performance

Source: Lipper for Investment Management, Refinitiv

Source: Lipper for Investment Management, Refinitiv

Longer periods improve the numbers, but not by much

Advocates of passive investing will not feel threatened by these short-term numbers and other than the UK classification where active funds have managed to move to a 52% outperformance metric, fund managers in Europe and the US classifications have failed to consolidate improvements made to 1H 2019.

Is Alpha opportunity cost material?

The “opportunity cost” of not investing in an active fund (i.e., missing out on alpha) can still be material, especially over longer periods of time. In this limited study, over the YTD Q3 2019, there has been some convergence. Even the best performing active funds in each classification may not be significantly impressive over the highest performing tracker fund, to convince passive advocates.

The blue bars in each of the graphs on the right-hand side reveal this. To Q3 2019, the best-performing active fund in the Lipper UK Equities classification outperformed the highest-ranking broad-based tracker by 7.5% percentage points.

In the Europe ex UK classification, over the same six-month period, that figure is 6.8% and for US equities, 8.8% points—respectable perhaps, but hardly stellar.

2019 – Improving fortunes for active?

The thesis is that, typically, late-cycle environments precede a rotation out of momentum-biased ETFs and the increasingly expensive large-cap stocks in which they invest, providing fertile ground for active stock pickers.

There was a marked improvement for active funds to 1H 2019 but save for the Lipper UK classification which has continued to strengthen, other classifications have retreated in Q3.

Like many active fund advocates, I have long-held belief that we may be entering a period in the market cycle which is more conducive for active funds in aggregate. Although I will concede that holding my nerve is becoming more difficult!

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.


UK Lipper Leaders: Looking at Unclassified Funds–October 2019

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Sometimes a classification scheme isn’t a classification scheme. Typically, investors want to compare apples with apples. Most classification schemes are designed to allow investors to make meaningful comparisons of investments with similar characteristics and within a relevant body of peers. When examining unclassified funds, Lipper Leaders metrics really come into their own.

Meaningful comparisons in Unclassified funds difficult

The IA Unclassified sector is a mixed bag. It is a repository of funds which do not wish to be constrained by a classification or benchmark restrictions or funds which have breached other sector limits or rules.

This is not to say that funds in this classification are undesirable investments only that it is impossible to draw any conclusions about their characteristics from their classification alone. Here we see pure equity funds mixed in with bond funds and multi-asset funds – indeed, the IA Unclassified sector consists of funds from 40 of the more granular Lipper Global Classifications.

Exhibit One. Top performing IA Unclassified Funds ranked over 3-years (with 5-year history – to September 2019)

Source: Lipper for Investment Management, Refinitiv

Source: Lipper for Investment Management, Refinitiv.

Lipper classifies all funds into a relevant classification scheme

And that is how we can begin to bring order to our analysis. Lipper does not have an unclassified classification. We ensure that where possible every fund in our database is placed into a relevant peer group based on objective, literature and current asset allocation. Lipper Leaders scores are then calculated after this has occurred.

BlackRock Growth & Recovery A Acc fund for example, is classified in the Lipper Equity UK classification and its Lipper Leader metrics compare it to other funds in that category. Trojan Ethical Income is compared to other funds within the Lipper Equity UK Income classification.

Investors should use extra diligence in researching unclassified funds

As the IA Unclassified sector does not have a homogeneous character, investors will need to decide which Lipper Leader metric is most appropriate for their analysis. Some assumptions can be made on each metric. A strong Consistent Return or Total Return score without a strong Preservation score intimates potentially higher equities content.

Investors and advisers should always use several tools and inputs to assess the suitability of an investment. More so for the IA Unclassified sector than perhaps any other.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is no indicator of future performance.

Can Cyprus become a Fund Domicile Powerhouse?

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For sophisticated investors a fund’s domicile may be a material factor in the due-diligence of a potential collective investment. It is important because it has implications for fund structure, regulation and governance, transparency, taxation and a host of ancillary fund-related functions such as custody, depository obligations and data exchange.

Cyprus is a comparatively small global domicile

Many countries in Europe have a good proportion of funds created for domestic consumption in their own countries and fund managers are attracted significantly to Luxembourg (which has €4.4 trillion AUM as a domicile (8% of the global fund market) and Ireland (Which has over €2.5 trillion as a domicile 4.6% of the global market) which have carved out a niche in cross-border funds, i.e. funds available for sale across a number of regions.

Other Non-EU domiciles in the region such as the Channel Islands have carved out a niche for trust investments and more complex, non-regulated funds or alternative investment schemes but for many investors, there is a particular attraction for an EU-based domicile.

The Republic of Cyprus is making a strong and coordinated effort to attract funds-related business from both investors and fund managers. Currently compared to the domiciles above it is a minnow with AUM as at June 2019 of only €6.8 billion. However, the rate of change is considerable. In 2012 its AUM was €2.1 billion and the Cyprus Investment Funds Association (CIFA) predicts AUM of some €20 billion by 2023.

But has ambition…

Cyprus offers considerable potential as a future fund powerhouse. It is member of the European Union and compliant with EU laws and regulations, it is a Eurozone member, has a favourable EU and OECD approved tax regime, has a robust legal system, and has a very sophisticated fund infrastructure. It is also well located in the eastern Mediterranean with English being widely spoken.

Ostensibly, I feel that the Cyprus isn’t trying to pitch for business in the already saturated UCITs market, although it will undoubtedly pick up some business there. It looks to specialise in some of the alternative types of funds and is making a mark in more complex Registered Alternative Investments with assets such as global shipping where it already has a strong global presence.

I suspect that there will be some opportunities for Cyprus for the fallout of Brexit and possibly even with the political unrest in Malta which is a domicile competitor.

The Republic of Cyprus’s ambition with respect to funds is evident. Its fund industry is open, approachable and all the industry and governmental arms are aligned. There is a unified effort across institutions such as its stock exchange (CyEX), industry bodies such as the CIFA and its government to welcome new fund managers and investors.

Bad headlines don’t reflect better intentions

Since the Global Financial Crisis, it is true that the Cyprus finance industry has not always been in the news for the right reasons, even recently gaining poor headlines with respect to its “golden passport” scheme. However, Cyprus is making good on important reforms, (e.g. non-performing loans are down 68% from peak to €9.5 billion as at November 2019) and is undoubtedly aware of the importance of dealing promptly with any issues that compromises its reputation.

Cyprus is building a formidable foundation of expertise across all areas of fund management and administration.  It is also creating a strong network of highly educated financial and ethical professionals. The Chartered Institute of Securities and Investments stated that it had 212 members in Cyprus at the end of 2018, growth of 86% from 2017. The CFA institute is also building up a representation on the Island. Ethics both underpin these organisations and growth here augurs well.

Big names are heading there and it has boutique appeal

I recently chaired the CIFA 5th International Funds Summit in Nicosia. It was a very impressive affair indeed with a large concentration of big industry players, and importantly a large proportion of non-Cypriot delegates. It really provided an outstanding showcase of the fund expertise Cyprus has built. I highly recommend it for anybody looking for a new fund hub.

Just as a “boutique” fund manager may have an attraction to some investors who prefer the nimbleness of a smaller operation, Cyprus has many as a boutique domicile. They are currently very easy to do business with. In a single visit, you’d be able to see pretty much any key player in its fund market making a due-diligence visit straightforward.

Also, the weather is great!

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 

Can UK Commercial Property Funds Survive 2020?

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It has recently been announced that the high-profile suspension of the M&G Property Portfolio will continue in order to allow time for liquidity in the vehicle to be increased.

The travails of UK funds which invest in direct commercial property have been apparent since before the Brexit vote took place in 2016. Investors have been spooked by the potential implications for the asset class by a “hard-Brexit.” This has been compounded by poor returns (see Figure 2., below) as a struggling retail sector continues to be affected by on-line disruption (retail constitutes around 30% of the commercial property market).

Lipper data reveals that outflows in the five largest UK-based commercial property funds have been considerable with some £2.3 billion coming out of these funds during 2019.

Figure 1. Estimated monthly net flows of the five largest UK-based commercial property funds

Source: Lipper for Investment Management, Refinitiv

Source: Lipper for Investment Management, Refinitiv

Why invest in commercial property?

Investors are attracted to commercial property funds primarily because they tend to offer a good yield. Consider the aforementioned M&G fund – its historical yield as of November 2019 was 4.3%.

Also, commercial property funds have a low historical correlation to other asset classes, so they act as a strong portfolio diversifier. It is also an asset class which is tangible and visible. Many investors fail, however, to recognize that it is the relative illiquidity of this asset class which drives its benefit as a diversifier.

Mark to market does not equal liquidity

Commercial property funds currently are marked to market daily, yet the asset class is highly illiquid. This system works when times are normal. Typically, around 3% holding in cash in a fund is enough to meet day-to-day withdrawals from clients. However, in an atypical environment, property, unlike equities, cannot be sold off quickly. It is a lumpy, time consuming asset class in which to deal.

We’ve been through this before

Illiquidity events are not uncommon in this asset class. Commercial property funds were severely tested after before and during global financial crises, and there have been several liquidity squeezes on the asset class since then, notably in 2016 just after the Brexit vote.

Fund managers have learnt from these experiences. Lot sizes in funds have reduced, and portfolios tend to be more highly diversified across different regions. However, fund managers today cannot simply hold lots of cash as a preemptive solution to contagion events. Many investors desire a fully invested mandate with low cash drag. It’s a delicate demand for the portfolio manager.

Figure 2. 3-year performance of UK real estate indices (to 31/12/2019) in GBP

Source: Lipper for Investment Management, Refinitiv

Source: Lipper for Investment Management, Refinitiv

Investor expectations are key

As my colleague Detlef Glow highlighted late last year, other countries have different approaches to the liquidity problem inherent in property funds. Germany for example, has used regulation to protect investors in property funds. In Australia, direct property is often packaged into syndicates with specific lock-in periods. Clients know that they cannot access their investment for several years.

It is the daily pricing of these funds which I believe is the root cause of the problem. Investors often see commercial property as a cash proxy and are perhaps misled by the “assurance” that this is reflected in daily pricing.

Clearly there is further education required here which is recognized by the UK Regulator pronouncement in September 2019.

Market events ebb and flow…

Brexit is a very unusual market event, but it is set to resolve itself given that there is a new pro-Brexit government in the UK with a large majority.

Certainly, the outlook for retail assets is tough, but this could change, and opportunities in other sectors will present themselves. All investments are subject to these market vagaries and commercial property is no exception.

Normality should prevail

My personal view is that these funds are robust enough to weather this current storm. They survived the global financial crisis, and “bricks and mortar” assets will always hold appeal for investors who want to diversify away from securities. The asset class has a compelling yield profile and property fund managers have learnt many lessons about liquidity management.

The suspension of any mutual fund is disconcerting to an investor who is directly affected. Let’s not forget though that this is an important mechanism to protect remaining investors and prevent asset disposals at fire sale prices.

In the meantime, investors need to understand what they are investing in and why they invested there in the first place. The temptation to associate daily pricing with liquidity needs to be overcome.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. The author is invested in the M&G Property Portfolio.

2019 – A Disappointing Year for Active Equity Funds

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As I ran the data below for the end of 2019, it was with a certain sense of trepidation. I am on the record as being a vocal advocate of active funds and I knew that despite a rising tide in markets, many of them had struggled against their passive peers.

The thesis is that, typically, late-cycle environments precede a rotation out of momentum-biased ETFs and the increasingly expensive large-cap stocks in which they invest, providing fertile ground for active stock pickers.

However, despite 2019 being a good year for equities markets generally, as well as a year that recouped the poor fund flows of 2018, active funds really haven’t shown any signs of being able to statistically beat their passive peers.

Figure 1. One-year percentage growth of Lipper global equity fund classifications to end of 2019 (GBP)

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance.

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance.

Active funds in the Lipper UK Equities classification have begun to show signs of improving performance relative to their passive peers after a sustained period of relative underperformance. Where there had been signs of similar improvement across the board to H1 2019, active funds in the US Equities and Europe ex UK Equities classifications have struggled towards the end of 2019.

UK equity funds performance

At the end of 2018, only 14% of active funds in the Lipper UK Equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months. This figure for 2019 has improved to 54%. Certainly, this is a material improvement, but only just better than the toss of a coin.

Over longer-term time periods, the numbers begin to drop off. For the three years to the end of 2019, only 35% of active funds in this classification beat the highest-ranked passive peer, and over five years, this figure falls to a disappointing 29%.

Figure 2. UK equity funds performance

Source: Lipper for Investment Management, Refinitiv.

Source: Lipper for Investment Management, Refinitiv.

European ex-UK equity funds performance

Active funds in the Lipper Europe ex-UK equity classification have not fared as well although the 2019 figure has improved. At the end of 2018, only 13% of active funds in the Lipper European Equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months. For 2019, this figure has improved to 28%.

Over longer-term periods, the numbers remain reasonably constant (and low). For the three years to the end of 2019, only 23% of active funds in this classification beat the highest-ranked peer and for five years, this figure is 24%.

Figure 3. Europe ex-UK equity funds performance

Source: Lipper for Investment Management, Refinitiv.

Source: Lipper for Investment Management, Refinitiv.

US equity funds performance

We are all familiar with the theory of the efficiency of the US market and the difficulty active funds have in beating it. The numbers for active funds in 2019 make grim reading here. At the end of 2018, 26% of active funds in the Lipper US equity classification had beaten the highest ranked broad-based tracker fund in the same classification for the 12 months. In 2019 this number has retreated to 17%.

The longer-term figures are also very disappointing. For the three years to the end of 2019, only 26% of active funds beat the highest-ranked passive peer over the same period. For five years, this figure is a paltry 17%.

Figure 4. US equity funds performance

Source: Lipper for Investment Management, Refinitiv.

Source: Lipper for Investment Management, Refinitiv.

How material is the alpha “opportunity cost”?

The “opportunity cost” of not investing in an active fund (i.e., missing out on alpha) can still be material, especially over longer periods of time. In this limited study, over 2019, there has been some convergence in the European and US equities classifications, but some divergence in UK equities.

The blue bars in each of the graphs on the right-hand side reveal this. At the one-year ended 2019, the best-performing active fund in the Lipper UK Equities classification outperformed the highest-ranking broad-based tracker by a mighty 21.1 percentage points.

In the Europe ex-UK classification, over the same yearly period, that figure is 12 percentage points and for US equities, 11 percentage points. All these figures become larger over the three- and five-year time periods.

2020 – will the great rotation happen?

It may be tempting to conclude on the back of this data that an investor is better off simply investing in an index tracking fund, certainly for the European ex UK and US equities markets.

We know, however, that investors don’t (or at least shouldn’t) select funds at random. Those investors who have selected funds which are producing those high levels of alpha will be much better off than the tracker fund investors.

I cannot dispute these data points and, whilst like many active fund advocates, I have long held belief that we may be entering a period in the market cycle which is more conducive for active funds in aggregate. I recognise that at the moment however, this is a hard sell.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

UK Lipper Leaders: Looking at Equity Income Funds–January 2020

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The Investment Association (IA) UK Equity Income sector is one of the most popular with Lipper estimates of around £8.5 billion in assets (as of December 2019). It has long been a stalwart for UK equity investors, especially retirees willing to take on some risk to extend their retirement pot, but with the assurance of regular dividends.

The recent Woodford fund suspension has cast a spotlight upon equity funds generally, but also income funds and the way that they invest in order to juggle growth and income outcomes.

Equity income managers need to juggle growth with income

Many investors will be aware of how popular (and increasingly expensive) good dividend payers are becoming as we remain in a low interest rate environment. Some “bond proxy” stocks can still justify a rich valuation if there is commensurate dividend growth, but there is certainly more pressure on active fund managers to find value as well as maintain income.

Exhibit One. Top performing IA Unclassified Funds ranked over 3-years (with 5-year history – to January 2020)

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance.

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance.

This can result in what is called a “bar bell” approach where equity income fund managers invest in low-dividend paying growth stocks (which often are less liquid) to balance higher dividend-paying, large-cap holdings. Investors should always monitor an equity income fund for low or zero dividend stocks.

Equity income is expensive – active fund managers will know where to cherry pick

The changes to the IA rules for equity income where it lowered the income hurdle from 110% to 100% of the FTSE All Share yield, reflects the difficulty of finding cheap yield. This change gives fund managers the scope to invest in better valued stocks stocks—should wish—and stay in this classification.

In this month’s Lipper Leaders, we see some excellent Total Return metrics which reflect the enduring equity rally the market has experienced over the last two years. Where this is matched by a strong Consistent Return metric, investors should be able to take some comfort that the manager has done so with a good risk/ return profile over five years.

Generally, equity income funds are more defensive in a downturn, but investors would be wise to invest with an active fund manager who can keep an eye on ETF ownership of large-cap stocks. We are late-cycle now and any big correction would likely result in an across the board drawdown, especially for popular large-cap dividend payers.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is not a reliable  indicator of future performance.

UK Lipper Leaders: Looking at Conservative Mixed Asset Funds–March 2020

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The rally year of 2019 has been firmly put to bed with the first quarter of 2020 being dominated by the unfolding Covid-19 drama. This human crisis has dominated the headlines but the collapse of the oil price during this time has also contributed to much of the market volatility we have witnessed so far. In a market such as this, many investors will be seeking to reduce risk exposure via a mixed asset portfolio.

A popular classification for risk-averse investors

The IA Mixed Asset 0%-35% Shares sector is a suitable classification for those startled by recent events and is popular with cautious investors typically with a shorter time-horizon. The higher proportion of lower-risk assets is evident in the Q1 2020 performance: -7.8% for this sector compared to the Lipper Global Equity classification -16.9% (in GBP)

Exhibit One. Top performing IA Mixed Asset 0%-35% Shares funds ranked over 3-years (with 5-year history – to March 2020)

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance

Source: Lipper for Investment Management, Refinitiv. Past performance is not a reliable indicator of future performance.

This sector typically affords a higher degree of capital protection and is potentially suitable for investors near pre-retirement phase although as we see, capital can still be lost. This though, tends to happen mostly in short-term periods of drawdown such as that we are currently experiencing. In the medium to longer-term, this would be an unusual outcome.

A wide range of performance outcomes still possible

Lipper Leaders metrics are useful, even in a less volatile sector. This is because individual portfolio composition can still differ markedly within a 35% cap on equities. Consider the best performing 3-year return this month is 10.9%. The worst comes in at -19.5% This is a considerable difference.

It is notable that all our funds this month have scored a maximum Lipper Leader score for Preservation. This includes the difficult Q1 2020 period and is a reminder that long-term perspectives are key.

Which funds work hardest?

Three of our funds have scored top marks across all four metrics which is a considerable achievement. In this classification, keep an eye out for those funds which get both a high score on Preservation and Total Return. They’re the hardest workers!

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer: 
This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. Past performance is not a reliable  indicator of future performance.

U.K. Lipper Fund Awards 2020: We Will Meet Again

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The 30th annual U.K. Lipper Fund Awards event had been due to take place at London’s elegant Banking Hall on March 18, 2020. However, the physical event was cancelled due to the unfolding Covid-19 crisis.

Despite the developing human drama, we should still recognize those funds which have produced strong risk-adjusted returns for their clients to the end of 2019.

This year’s awards have seen several new faces as well as a handful of repeat winners. It is great to see a blend of boutiques and established houses which are beating the drum for active funds management.

Setting the scene: mutual funds had a better year in 2019

2018 proved a tough year for mutual fund managers with estimated Pan-European net outflows of €129 billion. However, 2019 was more positive, with improved performance and Pan-European estimated net inflows of some €304 billion.

A concentrated market presents opportunity

The U.K. fund market is highly concentrated. Looking at 3,000 or so U.K.-domiciled funds in the market, some 40% of total assets are concentrated in the 100 largest funds.

Only two of this year’s U.K. Lipper Fund Award winners appear  in those 100 funds. In the mutual fund world, big isn’t always beautiful and investors and fund selectors should be looking to channel flows into a broader product suite.

Similarly, fund sales specialists, should be articulating the alpha generating potential that smaller, nimble funds can bring to investors.

Where are the winners from five years ago, today?

Winning a Lipper Fund Award is justifiably something to be proud of. However, investors often want to know that there is some evidence of persistence in a winner. Clearly past performance is not a reliable indicator of future performance, but there is some evidence that past winners are doing something right.

Looking at the five-year performance (to the end of 2019) of the U.K. winners of 2014, of the 20 category winners that year, 13 of the funds are in the first or second quartile of their Lipper peer group.  Five of the funds are in the third quartile for the period and only one fund is in the fourth quartile. One fund is closed (it closed whilst it was in the second quartile of its peer group).

So, five years on, 70% of past winners are still out-performing the median of their peer group. Consistent returns can be found.

Lipper Fund Awards methodology

Lipper Fund Awards are based on the Lipper Leader ratings for Consistent Return. The awards are calculated using a utility function based on the effective return over multiple non-overlapping periods: three-, five-, and ten-year horizons. The calculations over multiple periods ensure all periods in which a fund underperforms the average of its peer group are identified.

In addition, Lipper uses a utility function based on behavioural finance theory to penalise periods of underperformance, with more significant weightings given to excess negative returns. This methodology ensures the winners of the Lipper Fund Awards are funds that have provided superior consistency and relative risk-adjusted returns compared to a group of similar funds.

The winning mutual funds in the U.K.

Twenty funds from the largest peer groups by assets under management in the U.K. fund universe were honoured for the three-year category with digital trophies showcasing their outperformance.

Baillie Gifford has been a regular winner over the last few years. They collected the Equity Global Income and Equity U.K. Awards for Baillie Gifford Global Income Growth A Inc and Baillie Gifford U.K. Equity Alpha A Inc, respectively.

Royal London Asset Management picked up a clean sweep in the mixed categories with Royal London Sustainable Diversified Trust A Inc, Royal London Sustainable Mngd Gro Trust B Acc and Royal London Sustainable World Trust A Inc winning the Mixed Asset GBP Balanced, Mixed Asset GBP Conservative and Mixed Asset GBP Aggressive categories respectively. Who says sustainability criteria can lead to sub-optimal outcomes?

First-time winners in the U.K. this year included Brown Advisory US Equity Growth A USD in the Equity US category and Tideway High Income Real Return A GBP in the Absolute Return GBP Low category.

The popular Equity U.K. Income category was collected for a third year in a row by TB Evenlode Income A Acc, and MI Chelverton UK Equity Growth B Acc clocked up another consecutive win in the UK Equity Small and Midcaps category.

A full list of the individual fund winners can be found here.

The group awards

For the prestigious group awards, a large group must have at least five equity, five bond, and three mixed-asset portfolios, and a small group must have at least three equity, three bond, and three mixed-asset portfolios.

New faces this year included Verbatim Asset Management in the Mixed Assets Small category.

The big winners, however, were Royal London Asset Management and Baillie Gifford. RLAM not only collected a three fund awards but won two group awards for Bond Large Group and the coveted Overall Large Group—a third year of winning twice in the group awards.

A full list of the group winners can be found here.

We look forward to seeing you in 2021

Lipper from Refinitiv takes this opportunity to congratulate all the individual sector and group award winners in 2020.

We hope that we will be able to see and have you all together safely at the 2021 U.K. Lipper Fund Awards. We will meet again.

 


Lipper delivers data on more than 265,000 collective investments in 61 countries. Find out more.

Disclaimer:

The Refinitiv Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. 

The Refinitiv Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the Refinitiv Lipper Fund Award. For more information, see lipperfundawards.com. Although Refinitiv Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Refinitiv Lipper. 

This material is provided for as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice. 






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