Technology stocks and value fund strategies shine in FE fundinfo’s July Crown rebalance

Leading financial data company FE fundinfo has announced the results of its July Crown rebalance - revealing the strength of value investing in 2024, as the top performing funds adapted to an economic environment dominated by tech, record-high interest rates and falls in inflation.

The AI boom supported the success of funds with high exposure to ‘Magnificent 7’ technology stocks like NVIDIA, and delivered high returns for clients.

Beyond the Magnificent 7, there were opportunities for agile funds to quickly adapt, diversify and find value for clients. Funds with low interest rate sensitivity and high exposure to credit benefited from fewer interest rate cuts than expected. The Crown rebalance also showed the strength of cyclical investment strategies, driven by the global economy largely avoiding recession. 

5-Crown Rated Funds

Overall, 8 new funds gained the 5-Crown rating during this latest rebalance, with each hitting the minimum 3-year track record to be considered. An additional 82 funds improved their Crown ratings to become 5-Crown rated, bringing the total number of 5-Crown rated funds to 354. These funds represent the top 10% of ‘Crown Scores’, calculated through rigorous performance metrics and benchmark comparisons.

Sectors and Groups

In sector terms, the top performer was Specialist, with 23.8% 5-Crown rated funds. It was followed closely by the Sterling Strategic Bond sector and the Japan sector, both scoring an average of 21.5% 5-Crown rated funds, with 17 out of 79 funds and 14 out of 65 respectively. Both Sterling Strategic Bond and Japan sector maintained the high rankings they achieved in FE fundinfo’s January Crown rebalance – albeit with a slight dip in 5-Crown rated funds of 5 and 1 respectively.

Other highly ranked sectors included Standard Money Market (20% funds 5-Crown rated) and UK Smaller Companies (15.6%).

The infrastructure sector – a leading sector a year ago with 6 of 21 funds (29%) 5-Crown rated – continued its long term decline in fortunes and now has no 5-Crown rated funds.

There were, however, changes once again among the groups with some fund managers seeing some changes from the beginning of 2024. 

Several groups enjoyed a significant boost in the latest rebalance - Thesis Unit Trust and Evelyn Partners both gained 3, taking their total 5-Crown rated funds to 7 and 9 respectively.

Notably, GQG Partners gained two 5-Crown rated funds, meaning its funds are now 100% 5-Crown rated.

Separately, M&G lost four 5-Crown rated funds, which saw them go down to 8, and Lazard lost 3, taking them down to just one 5-Crown rated fund. There were also 15 other groups that lost 5-Crown rating status for 2 of their funds.

Notable dips in fund performance included a string of funds that fell from a 5-Crown rating previously to a 1-Crown rating at this rebalance. These included Threadneedle Index Linked Bond, WS Ruffer Total Return and Oasis Crescent Global Income.

Charles Younes, Deputy Chief Investment Officer at FE fundinfo, commented:

“The latest rebalance shows consistency in the results earlier this year, with value investing proving its worth in the market. All eyes remained on central bank decisions in the first half of 2024. The low number of interest rate cuts from the Fed and the Bank of England meant many of the top performing funds were low duration, with little sensitivity to interest rate decisions and high exposure to credit - as seen in the success of Sterling Strategic Bond funds.

“Many of the standout performers in this rebalance like GQG were strategic in this volatile market, adapting to changing forecasts and finding consistent returns for clients - especially in AI stocks. And they were not alone, with the AI boom driving investors to the safe haven of ‘Magnificent 7’ stocks, amidst choppy waters in the bond markets at the start of 2024.

“The highest performing funds exemplified a careful and strategic approach, diversifying their holdings at the right time to balance the risks of market volatility and capitalise on opportunities to deliver alpha for clients.”

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, Deputy Chief Investment Officer at FE fundinfo, 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. As the last three years have shown significant and quick market rotation, the Crown ratings are more important than ever to give a solid quantitative assessment of a fund’s performance over a market cycle.” 

For more information, please visit fefundinfo.com.