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Fund Management Equity Index methodology

20 February 2017

FundCalibre's Fund Management Equity Index looks at all actively managed equity funds recognised by the Investment Association and compares them with their sector averages over a five year time frame*.

Each fund group's funds are then collected together to calculate the group's average fund performance. Fund groups must have a minimum of four qualifying funds to be included in the index.

FundCalibre's Fund Management Equity Index 2017:

  1. The top 10, results in brief
  2. What does the index tell us?
  3. More about the top five groups
  4. Risk-adjusted results
  5. Download the full list
  6. View the methodology (this page)

Funds excluded from the index**

  • Passive funds
  • All non-equity funds
  • Multi-manager funds
  • Institutional funds
  • Charity funds
  • Funds with a track record of less than five years
  • Funds not in an Investment Association (IA) sector
  • Fund houses with fewer than four qualifying funds
  • Some specialist funds in the IA Specialist sector which are difficult or impossible to compare including energy, agriculture and mining funds.

Steps to creating the index

  • We created a list of qualifying funds (see exclusion list above)
  • We measured every qualifying fund's out or under performance after fees against its respective IA sector average over the past 5 years. (We use main units as defined by FE Analytics). For some specialist funds we created our own sub-sector or measured against an appropriate benchmark
  • We collected each asset managers funds together
  • We worked out each asset managers average funds out or underperformance
  • We calculated what percentage of each groups funds outperformed
  • We calculated what percentage of each groups fund beat the average funds Sharpe ratio
  • Some decisions taken in the production of this index are inevitably subjective and are based on FundCalibre's own opinion. Every effort is taken to be as fair and accurate as possible. All data is sourced from FE Analytics

Breaking down asset managers into fund groups

Where appropriate we have broken down fund houses into different fund groups. Some asset managers operate independently, but remain part of a wider group. For example, AXA Framlington and AXA Rosenberg are presented separately.

Changes to the Fund Management Equity Index 2017

  • This year we have included some funds in the specialist sector including, but not limited to, Indian equity funds, Latin American equity funds and healthcare and biotech funds
  • Including more funds should make the index fairer and more accurate. There is now a higher number of groups in the index as more groups have met the four fund minimum criteria
  • We have also added some funds from the IA Unclassified sector and compared them with peers where appropriate. For example, where a fund has the same benchmark as other funds in a different IA sector
  • This year is the first year we have used 'clean' share classes. This is in line with FE Analytics who have now updated their 'main units' to clean share classes, rather than commission included share classes.

Risk-adjusted measures of performance

Although our main index looks at sector outperformance, we also wanted to assess groups on a risk-adjusted basis. We looked at various methods of doing this. By far the most consistent and fair metric, in our view, was the Sharpe ratio. The Sharpe Ratio is one of the most recognised risk-adjusted performance measures in the industry.

We concluded that looking at fund houses’ mean (average) Sharpe ratios on an absolute basis was unfair. This is because some sectors have much higher Sharpe ratios than others. Therefore a fund house with lots of funds in one sector with a high Sharpe ratio would be more likely to rank highly on our index.

In our view a fund group can only provide the best risk-adjusted returns for the part of the market they sit in. Therefore, a much fairer measure was to consider each fund’s Sharpe ratio versus the mean Sharpe ratio in its Investment Association Sector.

The asset managers that had a high percentage of funds with Sharpe ratios higher than their sub-sectors were delivering consistently good risk-adjusted performance.

Sharpe ratio in more detail

(annualised return – risk free rate)/annual standard deviation The annual return was compiled using 5-year daily data from FE Analytics. The annual standard deviation data was compiled using 5-year weekly data from FE Analytics. The risk free rate was taken to be the shortest dated government bond. Since this is primarily an index of UK funds, we decided that the 1-month UK T-Bill was most appropriate. The annual return of the risk free rate was therefore calculated as 0.35%, from data provided by FE Analytics.

Weaknesses of the index

The index does not account for survivor-ship bias. Funds that have been closed down or that have been merged with other funds are not included in these results.However, a list of those funds which have been closed or merged are below for information.

Funds closed or merged since the 2016 index: Franklin European Growth, Franklin Global Growth, Franklin Mutual European, Gam Star Gamco US Equity, Man GLG American Growth, Neptune Greater China Income, Sarasin Equisar Thematic Opportunities, Scottish Widows HIMFL Emerging Markets Focus, Scottish Widows HIMFL European Focus, Scottish Widows European Strategic, Scottish Widows Far Eastern Focus, Scottish Widows Japanese Focus, Scottish Widows UK Focus, Scottish Widows UK High Income, Scottish Widows UK Smaller Companies Alpha, Scottish Widows UK Strategic, Scottish Widows US Focus, Scottish Widows US Strategic.

*All data used to compile the Fund Management Equity Index is taken from Financial Express Analytics.
**Please note FundCalibre has included or excluded funds in very few cases at its discretion, based on what it believes will provide the fairest comparison of each fund group's performance over the time period. These funds are listed above, under 'Weaknesses of the index' sub-heading.

Go to the first page of this report (4/4)

Past performance is not a reliable indicator of future returns. Please note the Fund Management Equity Index does not constitute investment advice. If you are in any doubt as to the suitability of any investment you should seek professional advice. An appearance of any fund on this index is not an indication it should be bought, sold or switched.

This is a purely statistical chart. All cumulative statistics % change bid to bid, net income reinvested, five years to 31/12/2016. Source FE Analytics. While every effort has been made to ensure the accuracy of this information, FundCalibre takes no responsibility for any errors, omissions or inaccuracies therein.