Morningstar UK Limited, a subsidiary of Chicago-based Morningstar, Inc., (NASDAQ: MORN), a leading provider of independent investment research, today announced the winning funds and fund groups for the Morningstar UK Fund Awards 2014.
The Morningstar UK Fund Awards recognise those retail funds and fund groups that added the most value for investors within the context of their relevant peer group in 2013 and over longer time periods. Morningstar selects the winners using a quantitative methodology with a qualitative overlay that considers the one-, three-, and five-year performance history of all eligible funds, and adjusts returns for risk using Morningstar Risk, a measure that imposes a higher penalty for downside variation in a fund’s return than it does for upside volatility.
“The Morningstar Risk measure is ideal for these awards as we created it specifically to help identify funds that manage downside risk better than their rivals,” Christopher Traulsen, Morningstar’s director of fund research for EMEA, said “We believe this aligns better with investor concerns with respect to loss of capital and helps identify funds that can deliver a better investor experience.”
The winners of the Morningstar UK Fund Awards 2014 are:
FUND CATEGORY AWARDS:
Best UK Large-Cap Equity Fund
Invesco Perpetual UK Growth Acc
(Morningstar Analyst Rating™ of Bronze)
Invesco Perpetual UK Growth is managed by the experienced Martin Walker. He joined Invesco Perpetual in 1999 and has managed this fund since June 2008. Overall, Walker has more than 15 years of investment experience. He combines both top-down and bottom-up factors into his decision making, and adopts a pragmatic, unconstrained, and valuation-orientated approach. The fund’s performance has been particularly strong since the beginning of 2011, returning 19.3% on an annualised basis to the end of 2013 and outperforming the Morningstar UK Large-Cap Blend category average—which returned 10.1% over the same period—while keeping volatility below that of the category average.
Best UK Flex-Cap Equity Fund
Ecclesiastical UK Equity Growth A Inc
Ecclesiastical UK Equity Growth has provided consistent outperformance for its investors in recent years. It has finished ahead of the FTSE All Share Index in four of the last five calendar years, lagging only in 2009, and over this period has returned 21.2% on an annualised basis, compared with the index return of 14.3%. The fund has a highly experienced manager at the helm in Andrew Jackson, who has managed this fund for more than 10 years and who has more than 20 years of fund management experience.
Best UK Small-Cap Equity Fund
Schroder UK Dynamic Smaller Companies
(Morningstar Analyst Rating™ of Bronze)
The Schroder UK Dynamic Smaller Companies fund is managed by Paul Marriage, who originally joined Cazenove Capital (which was acquired by Schroders in July 2013) in November 2005. The investment approach is purely focused on bottom-up analysis, seeking stocks that satisfy his P3M parameters: Product, Market, Margin, and Management. With this in mind, Marriage focuses on companies that offer differentiated products, are the market leader within niche markets, exhibit margin growth, and have a high-quality management team. He is an experienced investor who has delivered robust returns over time, and has demonstrated an ability to perform through various market cycles. During his tenure, the fund has significantly beaten both the Morningstar UK Small-Cap Equity category and its benchmark, the FTSE Small Cap ex IT Index. To protect investors, the investment house has recently restricted fund subscriptions.
Best UK Equity Income
Invesco Perpetual UK Strategic Income Acc
The Invesco Perpetual UK Strategic Income fund has been managed by Mark Barnett since January 2006. He has more than 20 years of investment experience and has been with Invesco Perpetual since 1996. Barnett’s high-conviction investment process mixes a high-level macro overview with bottom-up stock-picking. During his tenure, the fund has returned 8.82% annualised, outperforming the Morningstar UK Equity Income category average by 2.32 percentage points per annum, with lower volatility relative to the category average.
Best Asia Pacific Equity Fund
First State Asia Pacific Sustainability Fund Class A (Accumulation) GBP
(Morningstar Analyst Rating™ of Silver)
The First State Asia Pacific Sustainability fund features experienced managers in David Gait and Sashi Reddy. Their process focuses on finding quality management teams that have the vision and ability to successfully manage the environmental, social, and governance risks and opportunities facing their companies. The strategy has worked commendably over the long term and the fund has outperformed the MSCI AC Asia Pacific ex Japan index since its inception in December 2005. Although this fund was soft-closed to new investors in January 2012, Morningstar analysts continue to be impressed by its high-calibre staff, who adhere to First State Stewart’s investment process and maintain the fund’s excellent track record.
Best Global Emerging Markets Equity
First State Global Emerging Markets Fund Class A (Accumulation) GBP
(Morningstar Analyst Rating™ of Gold)
The First State team has delivered outstanding long-term returns for its investors, achieved through a well-resourced and stable team that focuses on preserving investors’ capital. This was exemplified during the depths of the credit crisis in 2008 when the fund lost 22.97% compared with its average peer, which lost 37.27%, and also in 2013 when the fund posted a slight positive return during a falling market. Moreover, the fund has ably participated in rallying markets as shown during 2009 and, more recently in 2012, when the fund returned 20.77% while its average peer delivered 11.98%. Over the five-year period ending 2013, the fund posted an annualised return of 17.27% versus its average peer return of 10.5%.
Best Europe ex-UK Large-Cap Equity
Invesco Perpetual European Equity Income Acc
IP European Equity Income boasts an experienced manager in Stephanie Butcher. Although she only took over the fund in November 2010, her experience in European equities dates back to 1998, and she has managed portfolios for Invesco for more than a decade. Butcher aims to generate a rising level of income with long-term capital growth. However, her approach is pragmatic and mindful of being completely driven by yield, as she is conscious that this may lead the fund toward areas where fundamentals may be unattractive. Butcher’s dual focus on valuations and companies with strong fundamentals has aided the fund’s exceptional relative performance in years as disparate as 2011 and 2013, where the fund outperformed most of its peers in the Morningstar Europe ex UK Large Cap Equity category in both years. Since Butcher took charge, the fund is also significantly ahead of its peers, returning 14.8% per year annualised compared with 10.1% for its average peer.
Best Europe Equity Fund
BlackRock Strategic Funds European Opportunities Extension Fund AD GBP Acc
This fund is run by three co-managers: David Tovey, Zehrid Osmani, and Simon Hunter. Tovey has managed the fund since August 2007, although his experience at BlackRock stretches back to 1998. Osmani has 16 years of investment experience and has worked with team head Nigel Bolton for the last eight years, while Hunter’s experience has predominantly been in research. The managers use an extension strategy to maximise total returns, where in addition to having up to 100% of the assets exposed to equity securities via long positions, the managers also enter into synthetic short positions to achieve additional investment exposure. The proceeds from the synthetic short positions are then used to buy synthetic long positions. The managers applied their process skilfully in 2013, driving the fund to a top-percentile ranking within its Morningstar Europe Flex Cap Equity category and sealing the year with a 48.7% return. The fund’s performance in 2013 was a continuation of its staggering performance in previous years, as evident by its top-percentile ranking over three- and five-year periods.
Best Global Equity Fund
St James's Place Global Acc
St James’s Place Global has produced consistently strong performance since Dan O'Keefe and David Samra of Artisan Partners took over management of the fund in October 2010. That isn’t unexpected—the managers are highly experienced, having cut their teeth as analysts with Oakmark’s David Herro from 1997 to 2002 before joining Artisan. With a style that focuses on companies offering high returns on capital, sturdy balance sheets, and trading well below private market values, Samra has led the U.S.-domiciled Artisan International Value to exceptional results since 2002, earning the fund a Gold rating from Morningstar analysts. He and O’Keefe have repeated the feat at St. James’s Place fund’s U.S.-domiciled analogue, Silver-rated Artisan Global Value, since its inception. The trend has continued at the St James’s Place offering: over the three-year period to the end of 2013, the fund has outperformed its Morningstar Global Large-Cap Blend Equity category by 8.3 percentage points annualised. The fund protected shareholders well in 2011, producing a positive return of 1.4% while the category average returned a loss of more than 10%.
The fund also outperformed during the equity rally in both 2012 and 2013, beating the category average by 8.2 percentage points last year.
Best GBP Corporate Bond Fund
Rathbone Ethical Bond Retail Income
The Rathbone Ethical Bond fund has been managed by Bryn Jones since November 2004. The fund aims to achieve a high level of yield, between 5 and 7%, through a high-conviction portfolio of ethically screened investment-grade bonds selected using a thematic approach. The fund has performed strongly, both in absolute terms and relative to peers, achieving first-quartile returns in the Morningstar Europe GBP Corporate Bond category over one-, three-, five-, and 10-year periods. A large allocation to financial bonds, and bank and insurance bonds in particular, combined with a bias towards BBB-rated bonds and an underweight duration position, were positive factors over the past five years during the liquidity-fuelled rally in credit assets and particularly strong returns from lower-rated financial bonds.
Best US Equity Fund
Old Mutual North American Equity Acc
(Morningstar Analyst Rating™ of Bronze)
This is an excellent quantitatively driven fund overseen by lead manager Dr Ian Heslop. In keeping with most quantitative strategies, the fund has historically worked best during upward-trending, low-volatility markets, hence its outstanding performance in last year’s broad-based rally across the North American exchanges, when the fund returned 39%, a figure comfortably ahead of its index and peers. The team’s stock selection took advantage of renewed consumer optimism across the Atlantic as some of the biggest contributors to performance were online retailer Priceline and cosmetics company Nu Skin Enterprises.
FUND HOUSE AWARDS: WINNERS:
Best Larger Fixed Income Fund House
Fidelity boasts a huge analyst team, which helps the firm with its bottom-up approach to investing. In addition to its well-staffed London office, the firm has more than 100 fund managers and 200 analysts in local markets across Europe and Asia. Analyst research leads to buy recommendations lasting for 18-24 months, on average, a timeframe in line with the holding period for many fund managers at Fidelity.
Best Multi-Asset Fund House
In addition to solid fixed income credentials, Fidelity also has a number of highly rated equity teams. The firm’s strength and depth across these two main asset classes results in a strong foundation for the group’s multi-asset teams. Furthermore, Fidelity has continued to invest in its resources in recent years by significantly expanding its London-based U.S. equity analyst team in 2013.
Best Larger Equity Fund House
Schroders has benefited from stable ownership since it was founded more than 200 years ago, and the Schroder family still holds nearly half of the company’s listed shares. Following the Cazenove acquisition last year, Schroders’ assets under management have surpassed GBP 250 billion. Morningstar analysts think the firm’s size is matched with some quality offerings, particularly with the firm’s UK, Europe, Japan, and U.S. equity funds, which carry positive Morningstar Analyst Ratings.
Best Specialist Equity Fund House
Founded as a partnership in 1908, Edinburgh-based Baillie Gifford is owned by its partners who average more than two decades at the firm. Similar to many UK fund houses, domestic investors comprise a large part of Baillie Gifford’s client base, but an interesting contrast is that the firm’s investment expertise lies outside the UK. Morningstar analysts think the firm’s strengths are namely its U.S., Japanese, and global equity funds, which comprise the majority of the firm’s assets. Morningstar analysts also think highly of the firm’s history of capping funds approaching capacity, having soft-closed its emerging-markets fund after it crossed GBP 1 billion in assets. In Morningstar’s view, investors are better served by fund companies that place optimal fund sizes ahead of asset growth.
Best Specialist Fixed Income Fund House
Pioneer is owned by Unicredit and has dealt with a number of acquisitions and restructurings in recent years, though thankfully for investors the changes haven’t affected performance of the firm’s fixed-income funds. A number of Pioneer’s bond funds have positive Morningstar Analyst Ratings. Morningstar also has a positive view of the firm’s bonus structures for fund managers, which is weighted towards long-term returns.