sector boosted by growth in line with global markets and fresh product launches by leading and niche players over the previous 12 months
Funds in the increasingly popular active managed sector have on average provided investors with growth in line with global markets performance, up 3.29% over the three years to the end of February.
The various managed sectors have been growing in popularity recently, as exemplified by the number of funds launched by major players within the last 12 months, including Credit Suisse, Henderson, Jupiter and Axa.
The larger players have also been joined by a number of smaller niche groups seeking to enter the sector, such as Cazenove and Orbitex.
The appeal of the sector is clear. Active managed funds offer investment in a range of assets, but have the capacity to invest up to 100% in equities, a minimum 10% of which must be held in overseas equities.
Unlike their balanced and cautious managed counterparts, active managed funds can switch into fixed interest as long as the intention to reinvest in equities remains.
Funds in the sector adopt a wide array of strategies, often investing in a range of underlying assets. The active managed spectrum incorporates fettered funds of funds, such as Framlington Managed Portfolio, funds of investment trusts, including Matrix Investment Trust Performance, with unfettered funds of funds making up the bulk of the sector.
The AA rated Royal & SunAlliance Portfolio, managed by Martin Clements, is run as a fettered fund of funds, investing in the group's 15 unit trusts and Oeics, including trackers.
While fettered fund of funds managers have a much smaller universe of portfolios and managers from which they can choose from than their unfettered peers, Clements said there are a number of benefits besides cost efficiencies.
Clements said: 'I can have day to day meetings with the managers and I know exactly what they are doing with the funds, which is something I place great emphasis on.'
Over the three years to the end of February the fund has posted growth of 0.44%, compared to a sector average of 3.29%, albeit with a below average risk profile characterised by the fund's beta score of 0.95% versus the sector average of 1.01%.
The fund outperformed over the 12 months to the end of February, falling by 11.85%, compared to a sector average fall of 12.93%. Clements attributes this preferable capital preservation record to asset allocation on a geographic basis and stock selection within the underlying funds.
Clements said: 'Almost half of the outperformance came from asset allocation and the rest from being overweight cash when the markets were falling.'
Other contributory factors behind the fund's performance were being underweight the US and overweight the Pacific Basin, he noted.
Clements added: 'The negatives of last year were being underweight bonds and the UK, which are defensive, and overweight Europe, which had a bad year.'
In the swings and roundabouts that is fund management, the Royal & SunAlliance Portfolio underperformed in the period from March 2000 through February 2001, returning -6.86% versus a negative 5.46% sector average.
Clements said: 'Some of our funds had a difficult year and a number of our larger portfolios did not do so well and that is probably the main reason we underperformed.'
He noted that while the group's Europe and Far East funds buoyed performance, the US equity vehicles proved a drag on the numbers, providing for a disappointing year's performance when viewed in isolation.
Going further back, the fund again marginally underperformed between March 1999 through February 2000, posting growth of 22.34% compared to a sector average return of 26.42%.
While the fund had strong exposure to the US and Europe, which clearly benefited from the technology bubble, the strong risk controls implicit in RSA's fund management decisions limited bets in this field, meaning the funds missed some of the upside but avoided a lot of the downside.
The A rated Credit Suisse Multi-Manager UK Strategic Growth is one of a range of fund of funds vehicles managed by the experienced multi-manager team of Gary Potter and Robert Burdett. The fund was launched late last July and over the six months to 22 March has posted growth of 16.38%, bid to bid, compared to a sector average of 17.04%, according to Standard & Poor's.
The duo select funds using a scoring process based on 16 factors, which assess managers' style, consistency of style, investment objectives and ability to perform in different market conditions. Managers are sent in-depth questionnaires to enable Potter and Burdett to assess the above criteria and are followed up by face to face interviews which are followed by constant close contact to enable the pair to keep abreast of any developments.
The vehicle gives investors access to funds investing around the globe and both Potter and Burdett take responsibility for set geographic regions and fund types. Potter covers the US, Asia, emerging markets, UK equity income and global bonds, while Burdett specialises in Europe, Japan, UK growth and all other fixed interest fund types.
Burdett said the team is currently giving the fund a defensive slant, reflecting the Credit Suisse house view that equity markets are not going to rebound too strongly over the coming months.
Burdett noted: 'We are getting cash inflows every day and we are using that to tilt the portfolio. Our most recent move is to pursue a barbell strategy. We are taking a more defensive view on the core holding level, but have offset that with an increased focus on managers who are proven stockpickers.'
The fund has 24 holdings in total, the newest being Polar Capital Japan. In rebalancing the portfolio, Burdett has reduced exposure to the UK and added to his US overweight position.
He said: 'Our UK exposure is about 49% at the moment. At the beginning of March it averaged 56%. Our prime overweight relative to our competitors is the US. It cost us in August, but we are comfortable being overweight the US at the moment.'
Burdett's core US holdings are Fidelity, SG, Deutsche, Newton's core US offerings, along with Credit Suisse TransAtlantic and Findlay Park's US smaller companies vehicle.
Regression analysis: Regression statistics can be used to compare the relationships between funds, markets or a specific benchmark index. They do not make the assumption that the variables (funds) are related as cause and effect, but permit them to be influenced by other variables (markets).
Alpha: The Alpha describes the theoretical reward obtained by one investment when the second investment has a zero return. To calculate the Alpha, the returns of each are taken and compared together to identify their relationship. This reveals relationships between investments in both bull and bear markets. When applied to portfolios, it can be considered to be the return over and above (or below) the market through portfolio strategy. Good managers have a positive Alpha.
Beta: The Beta is the amount the first fund moves when the other moves by one unit. Beta is a measure of relative volatility (absolute volatility is calculated by standard deviation).
If one fund always goes up and down by 1.5 times of the performance of the index, its Beta will be 1.5. This implies that if the return of the index is positive, then 1.5 times this positive return can be expected of the fund. If the index goes up (or down) 10%, the fund goes up (or down) 15%. Beta represents the volatility of the first investment versus the second. It is only an estimate and to be accurate there has to be a perfect correlation between the two investments.
Correlation: Correlation shows the strength of a linear relationship between two funds. A perfect correlation is when the investments behave in exactly the same manner. A perfect positive correlation is represented by 1, perfect negative correlation by -1 and no correlation with a 0. A perfect negative correlation suggests that for every 1% movement by the index we would expect to see -1% movement return on the fund and vice versa. This is an important factor when using modern portfolio theory.every 1% movement by the index we would expect to
Source: Standard & Poor's
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