The number of potential closet trackers identified by Investment Adviser research has declined substantially in the past 12 months, from 15 in 2015 to just four.
This year’s list has two funds in the IA UK All Companies sector that fall into the metric, while there is one from the Global Emerging Markets group and one from the Asia Pacific ex Japan category. All four of the funds identified make the list by the smallest of margins and all emphasise they are not closet tracker funds.
A spokesperson for Dimensional Fund Advisors, which has two funds in the list – Dimensional UK Core Equity and Dimensional Emerging Markets Core Equity – explains the process of these vehicles is systematic.
“The point of our Core funds is to give investors market-wide exposure, with emphasis on the dimensions of higher expected return, size, value and profitability,” he says.
The Columbia Threadneedle fund just falls into the metric, with a spokesperson for the firm pointing out: “The Threadneedle Asia fund’s investment philosophy focuses on bottom-up stock selection with the aim of delivering above-average returns while controlling risk.
“Over the past three years the fund has performed in the top 32 per cent among its peers and has beaten the benchmark index return by a significant margin.
“Active stock selection drove 70 per cent of the three-year outperformance and the three-year information ratio is above the peer group average. This shows the fund is clearly delivering its objective of strong risk-adjusted returns in a volatile market environment.”
| The metric: How we worked it out |
Using data from Morningstar, we looked at all the funds in the Investment Association UK All Companies, Europe ex UK, Japan, Global Emerging Markets, North America, Asia Pacific ex Japan and Global sectors to identify actively managed funds with an annualised R-squared value of 0.95 or more for the three years to April 30 2016. This limit is based on the average R-Squared value for all passive funds within the sector. The annualised tracking error for the same period was added to show how closely aligned the funds have been to their respective benchmarks. The cut-off point was based on the average tracking error of tracker funds in that IA sector. The funds were then analysed using ‘active share’. In this report, portfolios with an active share of 60 per cent or less are considered to be potential closet trackers. Investment Adviser compared the average three year performance of these funds with their tracker peers, sector and index. Individual funds can outperform or underperform for a variety of reasons such as stock selection, fees, cash holdings and manager changes. The funds in the table are sorted by sector, and efforts have been made to remove funds with the stated aim of tracking an index or any institutional funds, although some may have an institutional bias. All companies on the list were given the opportunity to respond. |
