Sustainable funds continue to stand out in latest FE fundinfo Crowns rebalance

Ethical and sustainable funds continue to be 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.

With 17 funds gaining the highest 5-Crown rating, BNY Mellon’s Sustainable Global Equity and Sustainable Real Return, Jupiter’s Global Sustainable Equities and Montanaro’s World funds have all achieved the prestigious status at the first time of asking.

Charles Younes, Research Manager at FE Investments, commented:

“The strong performance of sustainably-focused funds has largely come about from a combination of favourable market conditions and growing interest in ESG investing from both investors, who are looking beyond returns and wanting to know where their money is going, and institutions and fund groups who are looking to diversify their propositions.

“The technology sector, where a lot of sustainable funds are concentrated, continues to perform well as many economies are adopting a hybrid home/office working approach as they emerge from the Covid-19 pandemic. Additionally, as ESG investing has taken off, many sustainable funds are now coming into maturity, having been launched three or more years ago and are now eligible for a Crown rating. That so many have been rated so highly and so soon, is testament to the strength of their proposition and their ability to capitalise on current market conditions.”

5-Crown rated funds

The total number of funds with the highest 5-Crown rating now stands at 397 in this rebalance, with 15 of these gaining the status for the first time and a further 9 moving from the lowest 1-Crown to the highest level.

Meanwhile the impact of the market rotation from growth into value strategies throughout 2021 has seen 125 funds losing their 5-Crown rating. Among these were six funds from Liontrust and five from Baillie Gifford (both star performers in the January rebalance) who were affected by this shift.

Group	New 5-Crown rated fund
AllianceBernstein (Luxembourg) S.a r.l.	AB Financial Credit Portfolio
Allianz Global Invtrs GmbH(UK)	Allianz Index-Linked Gilt
BlackRock	BlackRock ACS Lifepath 2034-2036
BlackRock	BlackRock ACS Lifepath 2037-2039
BlackRock	BlackRock ACS Lifepath 2040-2042
BNY Mellon Fund Managers Ltd	BNY Mellon Sustainable Global Equity
BNY Mellon Fund Managers Ltd	BNY Mellon Sustainable Real Return
Cohen & Steers	Cohen & Steers European Real Estate Securities
Cohen & Steers	Cohen & Steers Global Preferred Securities
Federated Hermes	Federated Hermes Unconstrained Credit
Jupiter Unit Trust Mgrs Ltd	Jupiter Global Sustainable Equities
Montanaro Asset Management Limited	LF Montanaro Better World
Montanaro Smaller Co Plc	Montanaro Better World
PIM Capital Management	PIMCapital IZA Global Balanced
T. Bailey Fund Srvs Ltd (ACD)	Ocean UK Equity
Threadneedle Investment Services Limited	Threadneedle Global Focus
Threadneedle Investment Services Limited	Threadneedle Managed Bond Focused

Sectors and groups

Among the sectors, the bond markets have performed particularly well over the past six months, with the IA Global EM Bonds sector seeing 9 out of its 31 funds (29%) gaining a 5-Crown rating, while the IA Global Government bond (25% of its funds receiving a 5-Crown rating) and the IA USD Corporate Bonds (20%) and IA USD High Yield Bonds (20%) also saw many of their funds become 5-Crown rated as well.

At the other end of the spectrum, the Crowns rebalance also reveals that income strategies continue to struggle. Among the worst performers were the IA UK Equity Income sector with just 5% of its funds gaining the highest rating and the IA Global Equity Income sector with 4%. The IA North American Smaller Companies sector meanwhile, which was the previous best performing in January, has also fallen significantly from having 30% of its funds 5-Crown rated in January, to just 10% in July.

Oliver Clarke-Williams, Portfolio Manager at FE Investments, commented:

“As the economy reopens, we can expect to see further rotational shifts within the market. Those equity funds which were riding the crest of the technology boom seen during lockdown will increasingly find it hard to replicate their outstanding performances over the past 18 months. In today’s climate, investors are looking for funds to generate income and are hunting yield wherever possible. Over the past six months the bond markets have been one of the few places to offer these pockets of yield, so for many investors, it will be pleasing to see so many bond-orientated funds performing so well.”

Across the different groups meanwhile, ABRDN had the highest number of 5-Crown rated funds within its stable at 16, followed by BlackRock and Liontrust with 13 each and Fidelity with 12.

Group	Number of funds		Number of five Crown funds	% of five Crown funds*
ABRDN		144	16	12%
Liontrust		58	13	23%
BlackRock		102	13	13%
Fidelity		88	12	14%
Baring		28	11	40%
Jupiter		73	10	14%
Baillie Gifford		30	9	30%
Sarasin		22	8	37%
Allianz		31	8	26%
Quilter		54	8	15%
JP Morgan		57	8	15%
Valu-Trac		74	8	11%

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:

“Crown ratings offer investors an opportunity to compare and contrast the performance of a fund over an extended period of time and throughout different market conditions. Over the past 18 months as the Covid-19 pandemic has caused extreme volatility in the markets, the Crown ratings provide a transparent and in-depth quantitative analysis of the global funds market.”