FE Fundinfo: Tech and value funds receive top ratings in July Crown rebalance

Value and technology funds were spotlighted in FE Fundinfo’s Crown Ratings rebalance for July.

The well-documented rise of the ‘magnificent seven’ tech stocks has seen returns for funds invested in the tech sector surge on the back of interest in artificial intelligence.

Elsewhere, strategies with low interest rate sensitivity and high exposure to credit benefitted from fewer interest rate cuts than expected. The strength of cyclical strategies was also exhibited in the rebalance, driven by the global economy largely avoiding recession. 

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Crown ratings are calculated by applying three tests — alpha based, volatility, and consistency — to each fund. Strategies need at least three years of history to be considered.

Based on these metrics, the top 10% of funds are awarded a ‘five-crown’ rating. Overall, 82 funds were awarded the top rating in July, taking the total up to 354.

By fund house, GQG Partners gained two five-crown rated funds, meaning all three of its offerings are now top-rated by FE.

Charles Younes, deputy chief investment officer at FE Fundinfo, said the US-headquartered boutique had been “strategic in this volatile market”, by adapting to changing forecasts and finding consistent returns for clients, especially in AI stocks.

“And they were not alone,” he added, “with the AI boom driving investors to the safe haven of ‘magnificent seven’ stocks, amid choppy waters in the bond markets at the start of 2024.”

Four M&G funds lost the top rating, bringing the asset manager’s total down to eight, while Lazard lost three to leave them with just one five-crown rating. Some 15 other fund groups lost two five-crown ratings each.

Royal London Asset Management topped the table for most five-crown ratings, with 30% of their 40 eligible strategies awarded the rating.

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From a sector perspective, the IA Specialist was the top performer with 23.8% of its constituents receiving five crowns. Sterling Strategic Bond and Japan both saw 21.5% of their funds awarded the accolade.

Meanwhile, the infrastructure sector now has no five-crown rated funds, despite 29% of its funds being in the top bracket last year.

“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,” said FE’s Younes.

“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.”

He added: “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.”