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Japan Funds Keep Their Cool but UK Equity Income Funds Disappoint in Latest FE Crown Ratings Rebalance

By Corporate

Updated on Tuesday, 30 January, 2018

  • 45% of Japan Funds are 4 or 5 FE Crown rated
  • 44 UK Equity Income Sector funds downgraded
  • LF Woodford Equity Income downgraded from 5 to 1 FE Crown following its debut rating six months ago

FE’s latest bi-annual Crown Fund Ratings rebalance¹ has awarded 324 funds with the highly-prized 5 FE Crowns, of which 15 are newcomers and 54 have jumped two or more FE Crowns to achieve the top accolade.

The IA Japan sector, which has outperformed the index by 2.41%² in the six months since the last FE Crown rebalance, is the biggest winner in percentage terms with 45% of funds receiving a 4 or 5 FE Crown Fund Rating and 37 of 56 funds upgraded, an average upgrade of 0.71 crowns per fund.

Conversely, the IA UK Equity Income sector has taken a big hit, with the average fund losing 0.73 FE Crowns, a total of 44 funds downgraded and only two receiving the top 5 FE Crown accolade.  Many well-known funds in the sector have suffered with LF Woodford Equity Income seeing the 5 FE Crown Rating it was awarded just six months ago fall to 1.  Rathbone Income and Trojan Income have also seen slips in their FE Crown ratings - from 5 to 2.

Robert Wilson, fund analyst at FE, comments: “There’s been no let-up in the Equity Income sector’s troubles in the past six months.  Concentration risk continued to wreak havoc - almost half of UK dividends come from a handful of companies - and managers not effectively managing this have been burnt.

“The last six months have had a tremendously negative impact on the LF Woodford Equity Income fund’s three-year numbers. FE Crown Ratings are built on an alpha based test, a volatility score and a consistency score and on all these metrics, the fund performance has dropped.  There have been well-documented poor stock picks, an increase in the volatility of the fund and two consecutive quarters of negative relative performance.”

Aside from Japan, other sectors that have had a strong showing this rebalance include China and Asia Pacific ex Japan with 41% of funds in each receiving a 4 or 5 FE Crown rating.  An impressive 50% of funds in the Europe ex UK sector are 4 or 5 FE Crown rated and 28% are 5 FE Crown rated. Similarly, Global Emerging Markets has fared well with 40% achieving 4 or 5 FE Crowns.

On the other hand, the Global Equity Income sector sees only a slight improvement on its poor run, going from zero 5 FE rated Crowns at the July 2017 rebalance to one – the Premier Global Infrastructure Income fund.  In the North America sector, less than 15% are 4 or 5 Crown rated.

All sectors have seen some churn in the ratings of their funds and 45% of funds (a total of 1345) have gained or lost FE Crowns at this rebalance.

Previously unrated funds receiving 4 or 5 FE Crowns

Funds must have three years of history to qualify for a FE Crown rating.  At this rebalance, 15 funds have achieved the highest ranking of 5 FE Crowns and 21 were awarded 4 FE Crowns.  Among these are five previously unrated Artemis funds, four of which are US funds (Artemis Pan-European Absolute Return – 5, Artemis US Absolute Return – 5, Artemis US Extended Alpha – 4, Artemis US Select – 4, Artemis US Smaller Companies – 4).  

Charles Younes, research manager at FE, comments: “Hiring the US equity team from Columbia Threadneedle back in 2014 has really paid off for Artemis.  They have given leading managers Cormac Weldon and Stephen Moore the freedom to replicate their investment philosophy resulting in strong performance and commercial success.”

Other high-ranking newcomers include Polar Capital UK Absolute Equity (5) and Oyster Absolute Return (4).  Younes comments: “The long short equity Polar Capital fund returned a positive performance of 47.51% last year with its stock picking and long exposure to materials, IT and financials paying off.  But this is a highly volatile strategy, which does not suit every investor profile. Oyster Absolute Return also returned a positive performance of 3.91% last year but through a top down multi asset approach.”


There are 54 funds upgraded by two or more FE Crowns to achieve the top accolade of 5 FE Crowns this rebalance and a third of these are fixed income funds.

Of these, Thomas McMahon, senior analyst at FE, picks out Artemis Strategic Bond and Janus Henderson Fixed Interest Monthly Income which both saw their ratings increase by 3 FE Crowns to achieve the maximum of 5: “Both Artemis Strategic Bond and Janus Henderson Fixed Interest Monthly Income have benefitted from a strong period for high yield which has made them top performers in the IA Sterling Strategic Bond sector.

“The Janus Henderson fund is structurally exposed to high yield stocks due to its focus on generating a high monthly income, while the Artemis fund has been heavily invested in this part of the market for years thanks to the managers’ views on where we are in the business cycle. Significant weightings to financials, including subordinated debt, also helped both funds.”


Looking at outright numbers of 5 FE Crown rated funds, Old Mutual Global Investors - who were in first place at the last rebalance - now share their top spot with GAM.  The two firms are tied with 11 FE 5 Crown rated funds a piece.  This rebalance marks Baillie Gifford’s first entry into the top three having previously occupied 15th place in July 2017.    

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Looking at the results in percentage terms, Miton stands out with 62.5% of its rated funds receiving 5 FE Crowns (5 of 8 funds).  Baillie Gifford also does well with 9 out of 23 rated funds awarded 5 FE Crowns (39%), so too does Premier Asset Management with 7 of 22 rated funds (32%).  Artemis has also had a strong showing with 7 of its 24 rated funds awarded 5 FE Crowns (29%).

FE Crowns Rating methodology

FE 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 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 Crowns
  • the next 15% - 4 FE Crowns
  • the next 25% - 3 FE Crowns
  • the next 25% - 2 FE Crowns
  • the bottom 25% - 1 FE Crown

Younes, said: “We rate all funds with a three-year history and we do not charge anyone for this service. We believe that quantitative ratings have an important role to play in supporting accurate and fair comparisons of historic performance but not future performance.  Our objective is to make the market more transparent and accessible – ultimately it’s about helping people make better investment decisions.”

¹  All IA sectors

²  Figures are from end June 2017 to end Dec 2018 – MSCI Japan Index

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