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.
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 and agriculture funds
Steps to creating the index
- We created a list of qualifying funds (see exclusion list above)
- We measured every qualifying fund’s over or underperformance after fees against its respective IA sector average over the past five 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. IA Unclassified equity funds are also compared against an appropriate benchmark or peer group
- We collected each asset manager’s funds together
- We worked out each asset managers average fund’s over or underperformance
- We calculated what percentage of each group’s funds outperformed
- We calculated what percentage of each group’s funds beat the average fund’s Sharpe ratio in each sector
- 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.
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.
Sharpe ratio in more detail
(annualised return – risk-free rate)/annual standard deviation. The annual return was compiled using five-year daily data from FE Analytics. The annual standard deviation data was compiled using five-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 0.28%, from data provided by FE Analytics.
Weaknesses of the index
The index does not account for survivorship 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, merged or no longer recognised by the IA since the 2017 index:
Baillie Gifford Long-Term Global Growth, Old Mutual Equity 2, GS Core European Partners, Fidelity Moneybuilder Global, Threadneedle European (ex UK) Growth, Threadneedle Japan Growth, Threadneedle Pacific (ex Japan) Growth, Threadneedle UK Growth, JP Morgan Turkey, JP Morgan Blue Chip Equity, Royal London UK Ethical Equity, JGF-Jupiter North American Equities, Baring Emerging Markets, Baring Global Growth, Baring UK Growth, Baring MENA, GAM Star European Growth & Value, Allianz Oriental Income, Allianz UK Unconstrained, Legg Mason Martin Currie Global Alpha, HSBC GIF Brazil, HSBC GIF BRIC markets, HSBC GIF Chinese, HSBC Euroland Equity and Aberdeen UK Enhanced Equity.
*All data used to compile the Fund Management Equity Index is taken from Financial Express Analytics. All cumulative statistics % change bid to bid, net income reinvested, five years to 31/12/2017.
**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.
These are purely statistical charts. While every effort has been made to ensure the accuracy of this information, FundCalibre takes no responsibility for any errors, omissions or inaccuracies therein.
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
