In spite of volatile global stock markets, a run of redemptions and declines in assets under management some investment managers are seeing a small ray of sunshine in the gloom.
UK asset managers are continuing to produce outperformance from their equity funds and to beat their European counterparts in France, Italy, Spain and Switzerland.
“When it comes to alpha, UK asset managers outperform their counterparts on the continent,” says Edhec, the business school, in its fourth annual survey of outperformance in conjunction with EuroPerformance.
It is the high proportion of fund managers’ equity funds that produce outperformance that “sets UK asset managers apart”, says Edhec. This alpha frequency averaged 52 per cent in the year to June for UK asset managers, compared with less than 40 per cent in Europe.
On a country basis, alpha frequency was 42 per cent for Swiss funds, 30 per cent for French and Spanish funds, and 22 per cent for Italy.
Edhec’s final alpha scoring system combines average outperformance with the frequency of that outperformance across a fund range.
The top performer of the 40 UK managers eligible for analysis is Jupiter Asset Management, up from second place last year. It scored 73 per cent in alpha frequency with 16 out of 21 funds generating excess returns of 4.2 per cent on average. Nearly 40 per of its outperformance was generated in international equities, while 25 per cent came from UK equities.
Edward Bonham Carter, Jupiter’s chief executive, believes adding value to returns is “like a cooking recipe” that depends on a combination of ingredients from good stock picking to keeping a wary eye on the leverage of companies. “Our primary source of alpha is stock selection,” he says. This is backed by Jupiter fund managers’ use of growth and value strategies and an emphasis on large to mid-cap stocks, he adds.
When it comes to beating European asset managers he sees a stronger culture of independent boutiques in London than in many parts of Europe where “asset management is at the bottom of the distribution chain of banks and the customer is not always a top priority”.
He also attributes the relative strength of the UK fund market to a longer culture of equity investing in the UK and greater investor confidence. “People have gone through more bull and bear markets [than European investors] and seasoned investors don’t panic as much as those who have come later to equity,” says Mr Bonham Carter.
Figures from Edhec show the UK market has held up better than the French one. Equity assets, managed by UK managers in the year to June, fell 14 per cent in the year to June – nearly £46bn (€58bn, $80bn) – with redemptions making up 11 per cent (£5bn). By comparison, French-registered equity funds fell 30 per cent over the same period with redemptions accounting for 20 per cent.
Not only are UK asset managers putting up a more robust performance than peers across the Channel, they are also improving on last year. Alpha frequency rose from 46 per cent last year to 52 per cent, while average alpha rose by 30 basis points to 2.9 per cent.
Five asset managers – Artemis, Coutts, Allianz RCM, BNY Mellon/Newton and Threadneedle – are making their debut in the top 10. Others such as Jupiter, Old Mutual, M&G and BlackRock are making a repeat appearance having been in the top 10 for the past three years.
Artemis, taking second place, failed to reach the minimum number of six rated funds to be included in the ranking last year but has shown a robust performance this year with a frequency of 63 per cent of excess returns across funds.
The group has enjoyed positive inflows this year, gaining £1bn of new money to the end of September. But it faces uncertainty over its ownership following the state bail-out of parent bank Fortis and subsequent sale of parts of the Belgo-Dutch group, including its investment management operations, to BNP Paribas last week. The deal, still to be agreed by the French bank’s shareholders, is likely to see some assets sold, some consolidated and some held. It is not clear yet what the outcome will be for Artemis.
In third place again this year is M&G, showing an alpha frequency of 66 per cent across its funds. It is the group’s third year in second or third position, making it the most consistent of the alpha league table top 10.
M&G was also one of the few firms in the top 10 to generate excess returns from five funds invested in European equities. David Jane, head of equity investment, says: “We do well in a more difficult market. We are a performance-driven alpha manager with a well-diversified portfolio and skilled managers.”
He believes UK fund managers outstrip European competitors because they have greater flexibility to manage portfolios. “The continental model is more institutional and more process oriented than talent focused,” he says.
Although BlackRock and Allianz RCM each gained the highest incidence of alpha frequency – more than 75 per cent – they fell into sixth and seventh place as their average alpha performance was less strong than some of their peers.
Threadneedle has moved up eight places this year to squeeze into 10th position, showing improved alpha frequency and excess returns. The results come from 23 funds covering the largest range of alpha producing funds in the league table.
Five asset managers, Aberdeen, Fidelity, JPMorgan Fleming, Invesco and Schroders, were squeezed out of the top 10 this year but still continued to produce alpha results similar to last year’s levels, says Edhec.
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