Active management and alpha manager winners

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At the end of July, global fund data and technology provider FE fund info celebrated the annual Alpha Manager Awards, which recognize the industry’s most visionary fund managers.

In an age where the benefits of active fund management are increasingly scrutinized, Alphas provide investors and fund selectors with invaluable scoring benchmarks for discovering which active managers have been able to consistently create an alpha. adjusted for risk and beat their benchmarks even during the toughest of markets.

The awards select 11 potential winners based on sector categories, including areas spanning UK, European, Asian, North American and global stock markets; strategic obligations; fixed income; emerging markets and mixed assets, and thus provide an overview of the shape of the investment industry.

This year’s ‘Best Alpha Manager’ winners were Julian Fosh and Anthony Cross from Liontrust. During what has been a good year for Liontrust (during the recent FE fundinfo crown ratings rebalance, they were the only group with the most funds to receive the highest 5 crown rating), their Liontrust UK Growth fund also returned 64.41% more over a five-year period to the end of 2019, more than 20% more than its industry benchmark IA UK All Companies during the same period. period.

While this performance was undoubtedly impressive, investors can be quick to point out that the conditions active fund managers faced in 2019 were fundamentally different from those in 2020.

However, as shown in the graph below, Julian and Anthony have managed to capitalize on the recovery from the worst mass sales of March 2020, especially against the IA UK All Company sector:

Since the bottom of the decline at the end of March, the Liontrust UK Growth fund has steadily outperformed the sector benchmark in recent months and even briefly returned to a positive return in June. This was largely achieved through their “Economic Advantage” process, which Anthony Cross formed in 1997, with Julian joining in 2008, and has been applied to the UK Growth fund since 2009 in the aftermath of the last financial crisis.

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The process is a key differentiator and looks for companies that own “intangible” assets that provide those companies with competitive advantages that allow them to maintain above-average levels of profitability for longer periods of time. It has been applied consistently and is not easy to replicate given its emphasis on intangibles and knowledge of the finer details of how businesses operate and developments that they often wish to keep out of the eye. the public or their competitors.

At the same time, as Alpha Managers, Julian and Anthony complemented this approach with an impressive stock selection. Their two largest holdings – in which they are heavily concentrated – are the behemoths of medical research, Astrazeneca and Glaxosmithkline. As we’ve seen throughout the pandemic, medical research, along with tech stocks, has been one of the few “stars” in the stock markets, with every move towards a potential vaccine increasing the value of those stocks.

Breaking down their holdings further, as shown in the chart below, these choices along with holdings in consumer products such as Diageo, Unilever and the Reckitt Benckiser Group offset their holdings in the oil and gas industry, which have , with the fallout from the pandemic, has caused many stocks to experience sluggish levels of performance.

Beyond stocks, Alpha Manager’s winners in the fixed income and strategic bond categories tell a similar story. Richard Woolnough of M&G won in the Sterling Fixed Income category outperformed the industry average with efficient credit selection in the corporate bond and asset-backed securities markets, while Richard Hodges of Nomura Asset Management was recognized for its flexible approach to asset allocation, which has helped the Global The Dynamic Bond fund is one of the best performing in the sector, with a return of almost 5% since the start of the year , compared to 2.93% for the IA Sterling Strategic Bond sector during the same period.

While 2020 has been an unprecedented year for investors, it has at least shown that the trend of increasing assets pouring into passive funds and trackers throughout 2019 is not a guaranteed way to generate returns. in times of volatility. The Alpha Manager 2020 award winners have shown that active management, with good stock selection and effective market analysis, remains as important today as it was both during the recession. and recovery.

Charles Younes is Research Director at FE Investments


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