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UK Gilts lead the field in latest FE Passive Crown rebalance

By Corporate

Updated on Tuesday, 29 January, 2019

  • Blackrock (iShares) tops group charts

LONDON, 29 JANUARY 2019: FE today announced that UK Gilts topped the sector charts in the latest FE Passive Crown Ratings rebalance with 38% of funds achieving the maximum five FE Passive Crown Rating. Following closely behind were Property (30%), North American Equities (29%) and Emerging Markets Equities funds (29%), whilst no Sterling Corporate Bond funds achieved the top accolade for a third rebalance in a row.

In total, 292 passive funds were rated in the bi-annual FE Passive Crown Ratings rebalance, 22% of which achieved the highest rating of five FE Passive Crowns. The ratings are designed to check how well a passive fund is doing its job at tracking its benchmark over three years. Funds are ranked objectively and transparently using a quantitative methodology in which funds are ranked between one and five FE Passive Crowns.[1]

Portfolio manager at FE, Oliver Clarke-Williams said: “It is not surprising that UK Gilts have topped the charts as it is a  highly liquid asset class and therefore easy to replicate.  Likewise, passive North American equity funds tend to track their benchmarks well due to the size and efficiency of the market. More surprising is that there are so many five FE Passive Crown rated Property and Emerging Markets funds as these are generally seen as quite difficult markets to replicate.

“Corporate Bond funds have generally struggled to achieve a five FE Passive Crown rating. This is perhaps not surprising when considering how difficult some of these indices are to track.  Not only are they often made up of hundreds of securities but because they are traded over the counter rather than on an exchange like equities, buying and selling is much more difficult.”

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At a group level, Blackrock (iShares) retains the top spot with 25 five FE Passive Crown rated funds compared with 23 last time around (July 2018), while Vanguard retains second place with 10, having achieved 11 in the previous rebalance.

Newly Rated Funds

This rebalance saw six funds rated for the first time due to their meeting the three-year performance history requirement. One of these funds soared to a five FE Passive Crown Rating at the first time of asking: Credit Suisse CSIF Equity EMUXtrackers.

FE’s latest Passive Crown Ratings follow the recent FE active fund Crown Rating rebalance earlier this month.  FE launched its Passive Crown Ratings in 2015 as there had been a gap in the availability of quality research on passive funds owing to their complexity.

Oliver Clarke-Williams commented: “Too much of the active passive debate has been focused on the ability of active managers, whilst passive funds have been considered more or less equal. The dispersion in quality among passive funds is almost as great as it is among active funds and poor tracking and high charges can cause major underperformance that most people wouldn’t consider possible. It is important to put as much effort into identifying a good passive fund, as a poor choice can be just as destructive to wealth.”

[1] See notes for Editors for more information on methodology.



FE Passive Crown Ratings methodology

FE Passive Crown Ratings rate both passive funds and ETFs, based on their ability to track and match their chosen benchmarks.

Passive funds are awarded between one and five Passive Crowns, based on their ability to track their index

Which funds and ETFs qualify?

FE rates around 290 passive funds available for sale in the UK, which between them track around 60 indices. Only funds with a three-year track record qualify for a rating.

There are of course many more than 290 passive funds and ETFs available for sale in the UK, but FE will only rate funds whose benchmarks reflect the main types of investment that a UK investor would be interested in. So, a number of passive funds that track commodities indices, leveraged and reverse trackers, as well as “smart beta” products, are excluded.

Rating Method

Rating Components

FE uses three components when calculating the FE Passive Crown Rating. Tracking difference is the most influential component, followed by tracking error and fund size.

  • Tracking difference, which calculates the annualised relative performance of a fund compared to the underlying index. For example, if a fund returns 10 per cent over 12 months and an index returns 12 per cent, the tracking difference is two per cent.
  • Tracking error, which calculates the volatility of the difference of the returns between a fund and its benchmark. For example, a fund that perfectly replicates the performance of its underlying index every day over a 12-month period, its tracking error will be zero. However, if a fund deviates from its index on a regular basis it will have a higher tracking error, even if the tracking difference after 12 months is zero.
  • Fund size. While this is not typically discussed when comparing tracker funds, FE sees it as important.

For more information about the methodology, please contact the press office

About FE

FE is a leading international provider of data and technology to the asset management and wealth management industries, with clients ranging from the world’s largest asset managers and banks to financial advisers and distributors. FE connects these groups to enable better informed investment decision making, providing data, documents, tools, research, ratings and model portfolios. In November 2018, FE joined forces with two fund data businesses based in Europe ꟷfundinfo (Switzerland) and F2C (Luxembourg).  This combination harnesses the complementary capabilities, reach and resource of each firm, increasing the breadth and depth of the client offering and positioning the firm for rapid international growth. FE employs c.600 people across UK, Switzerland, Luxembourg, India, Australia and other European and Asian centres.

Media Contact

James Hoey

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