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Fund Management Equity Index methodology

10 April 2016

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 2016:

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

Funds excluded from the index**

  • Passive funds
  • Fixed interest funds
  • Multi-asset funds
  • Multi-manager funds
  • Funds in the specialist or unclassified sectors
  • Institutional funds
  • Charity funds
  • Funds with a track record of less than five years
  • Funds not in an Investment Association (IA) sector
  • Specialist funds in the global sector (e.g. Energy, Biotech and Healthcare)
  • Fund houses with fewer than four qualifying 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 not clean share classes)
  • 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

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, Stewart Investors is part of First State but is considered separately. This is because it operates as its own autonomous unit.

  • AXA Framlington from AXA Rosenberg
  • Stewart Investors from First State Investments
  • Clearbridge, Martin Currie and IF QS are split out from the wider Legg Mason group
  • Scottish Widows, Scottish Widows HIFML, Halifax are split from Aberdeen
  • Marlborough have asked to be considered as a group, which is a change to our previous index when we split some teams out.

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 which have been closed down or which have been merged with other funds are not included in these results.

*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.

View our Fund Management Equity Index 2015 and our Fund Management Bond Index 2015.

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 31/12/2015. 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.