The Investment Adviser 100 Club enables mutual funds and investment trusts to compete for membership, with trusts’ share price total returns considered. It also includes a selection of the best passive investment providers, making it an RDR-ready tool for intermediaries.
The calculation process is based on funds’ total returns over one and five years relative to the total returns of broadly relevant benchmark index or sector. The benchmark is chosen so a large group of funds can be reasonably compared with it. The data source was FE Analytics and all performance figures quoted are bid-to-bid and rebased in sterling where currencies differed. The performance figures range to May 31 2014.
Candidate funds are ranked by their outperformance of a relevant benchmark in the year to May 31 2014. Then potential 100 Club members are screened to ensure they delivered strong five-year returns. A fund must have put a double-digit gap – 10 percentage points or more – between its performance and that of its index in the past five years for it to convince us that it has long-term staying power. We expect it to deliver at least half that level of outperformance over one year – 5 percentage points or more for equity funds – to ensure it has delivered the kind of elite returns that would place it in our annual club of 100 funds.
Sometimes it is impossible to find funds in a sector that outperform by this demanding margin of 5 and 10 percentage points, so we narrow the margin proportionally – to 4 and 8, then 3 and 6 and so forth. Funds that underperformed the relevant benchmark in either one or five years are never included.
Candidate funds are then further screened to exclude the following, in order to ensure relevance to intermediaries:- Fund manager tenure less than 3 years.
– Mutual funds with less than £50m, trusts with a market cap below £100m (market capitalisation as at May 31 2014).
– Enhanced index or other ‘passive-plus’ funds.- Products that are not UK authorised or available for distribution to retail investors, or funds which have an excessively selective distribution policy.
– Repeat funds from the same fund manager. If a fund manager qualifies more than once in any one category, best performing product gains entry.
– Soft- and hard-closed funds, and funds earmarked for soft closure at the time of calculation, are disqualified to ensure membership is relevant to fund buyers.
– Funds with no sterling share class.- Funds that fail to make basic information such as performance, minimum investment, tenure, how to invest etc available to data providers and the public.
When the best funds have achieved Investment Adviser 100 Club membership, the five large and mid-to-small investment managers with the most Club member funds enter two provider categories. Where managers have an equal number of funds, the combined one-year outperformance of the investment manager’s member funds breaks the tie. A large investment manager is defined as having at least £100bn in global assets, including the assets of its parent group.
The Passive Investment Groups category is populated based on the views of a series of respected multi-asset fund managers who were given a series of criteria and asked to nominate their favourite three providers, with the members selected in a points system.
In the Absolute Return sector, we assess funds’ long-term performance over one and three years, rather than the usual one and five. To screen out absolute funds with excessive long-only risk funds with rolling three-year month-end maximum drawdown greater than 8 per cent are excluded.