2021 Crown Ratings rebalance

In a year where ESG investing has hit the mainstream, ethical and sustainable funds have been among the best performers in the latest rebalance of the Crown Ratings, which are published today by global fund data and technology leader, FE fundinfo.

Nearly a fifth of all the ethical and sustainable funds that were eligible for a Crown rating achieved the highest possible 5-Crown accolade, with the sector now accounting for 8.44% of all 5-Crown rated funds. This is despite ethical and sustainable funds accounting for just 5.04% of the total 3,255 funds that were considered.

Oliver Clarke Williams, Portfolio Manager at FE Investments, the discretionary fund management arm of FE fundinfo, said:

“There is no doubt that environmental, social and governance (ESG) investing has really taken off in the past year. While global lockdowns have had a huge impact on markets and traditional stocks have suffered, ESG funds have seen record inflows and increasing investor attention. Their success is reflected in our latest Crowns rebalance, where they now make up a significant proportion of the best performing funds. We expect this trend to continue in 2021 with new regulations coming into play, meaning funds will have to be more transparent with their ESG disclosures. Fund groups will increasingly direct their efforts and resources into making their investments more sustainable in the long term.”

Newly rated 5-Crown funds

Elsewhere, 16 new funds were awarded a 5-Crown rating at the first time of asking, only becoming eligible in January this year. Among those, BMO saw three of its funds – its BMO Universal MAP Cautious, Balanced and Growth – all achieve the award, while among the sectors, the IA Global and IA Volatility Managed saw four funds each gain the award:

5-Crown rated funds

Overall, 379 funds were given a 5-Crown rating in the January rebalance, with two funds, Aberdeen Standard SICAV I Global Innovation Equity and NB Corporate Hybrid Bond moving from the lowest 1-Crown to the highest 5-Crown rating. Meanwhile 109 funds lost their 5-Crown rating, with those using traditional stock-picking (such as financial services or energy) suffering in the fallout of the Covid-19 pandemic.

Charles Younes, Research Manager at FE Investments, said:

“Blue Whale’s LF Blue Whale Growth fund gained a 5-Crown rating at the first time of asking and is definitely one to keep an eye on. The Manager, Stephen Yiu, along with his Deputy Daniel Allcock, have adopted a similar successful approach to Terry Smith and performed admirably, returning more than 17% over the past year in very challenging conditions. Blue Whale has had a lot of press coverage as it is backed by Peter Hargreaves, which has taken shares in the company, so we expect it to be on many an investor’s radar in the year ahead.”

Sectors and groups

Despite the market fluctuations of 2020, both the sectors and fund groups performed broadly in line with their ratings last July. Among the groups, Liontrust once again achieved the highest number of 5-Crown rated funds from their portfolio with 17, while Baillie Gifford and Aberdeen Standard achieved 14 each.

Within the sectors, the strong performance of US equities throughout 2020 was reflected, with the IA US Smaller Companies sector seeing 29.4% of its constituent funds achieving a 5-Crown rating, followed by IA UK Index Linked Gilts (28.6%) and IA Europe including UK (26.7%). These were the same as in the last rebalance, carried out in July 2020. At the other end of the spectrum, with income-focused funds continuing to lag, the IA UK Equity Income sector saw just 2 of its 83 funds gaining a 5-Crown score.

*Percentages have been rounded up

Charles Younes, Research Manager, said:

“2020 was for many a year of home-working, which brought about rapid change within the markets and clearly defined the winners and losers in the new Covid-19 environment. Funds invested in technology stocks reaped the benefits, while those in traditional sectors such as energy and financial services not only suffered from the great sell-off in March last year, but also failed to capture the upside.

“Looking forward and with the prospect of huge stimulus packages being delivered at policy level, we can expect to see those funds with positions in infrastructure and technology to continue to perform well, while the recovery for traditional stocks will continue to lag. Another consideration is that a lot of fund groups have made changes at executive level, so we might see some of these alterations in investment strategy come into play later on in the year.”

Methodology

FE fundinfo Crown ratings are calculated by building up a ‘Crown Score’. The score is made up of three parts, and each part is calculated by reference to a benchmark for the fund. Once the benchmark is assigned, FE fundinfo then applies three tests (an alpha based test, a volatility score and a consistency score) to the total return history of the fund. Three years of history is required to carry out these scores, so any fund with less history than this will not qualify for a rating.

Funds are assigned ratings based on their total scores, according to the following distribution:

• the top 10% - 5 FE fundinfo Crowns
• the next 15% - 4 FE fundinfo Crowns
• the next 25% - 3 FE fundinfo Crowns
• the next 25% - 2 FE fundinfo Crowns
• the bottom 25% - 1 FE fundinfo Crown

Charles Younes, Research Manager, added:

“The extreme volatility we saw last year is set to run over long into 2021, which means for investors it can be extremely difficult to compare and contrast the performance of funds in a meaningful way. Our Crown Ratings offer investors quantitative research and only consider those funds with a minimum three-year history of performance, meaning performance is evaluated over a range of market conditions, providing greater insight, analysis and transparency to investment decisions.”