‘Choosing a unit trust’ was the title of HL’s first national advert, which we put in a newspaper back in 1981. A lot has changed over the past 37 years, but our passion to help you invest in great funds has never wavered. Today, we call our favourite funds the Wealth 50.
Here’s how we choose them.
Data deep dive
Before we even think about a fund for the Wealth 50 we need to see the fund manager’s track record. Not just a performance chart, that only tells a part of the story. We need to see the individual shares or bonds they’ve invested in over the course of their career.
Our analysts then transform this data so that we can use it within our own, one-of-a- kind system.
We need this data to cover at least seven years, and ideally ten. We’re strict when it comes to experience because markets are cyclical, and these cycles on average last about seven years.
Fund managers can be seduced by themes, like the internet stocks of the dotcom bubble. We want to see whether a fund manager sticks to their process, particularly when the way they invest isn’t in favour. Often, this separates the ordinary from the extraordinary.
Style and stock selection
We’re trying to separate the lucky from the skilful. Talent is repeatable, and that’s what we’re after.
So we use the data to separate a fund manager’s return into two components – ‘style’ and ‘stock selection’.
Style is where a fund manager invests. For example Richard Pease – manager of the FP CRUX European Special Situations Fund, focuses on medium-sized companies in Europe. When this area of the market does well, we’d expect managers who invest here – like Pease – to do well too.
Stock selection is the value added (or taken away) by the choice of stocks within this area. So if Richard Pease chooses the best medium-sized companies in Europe, his fund will outperform its peers. Take a look at the chart below, which shows Pease’s entire career.
Richard Pease - Career track record accross all funds managed
Past performance is not a guide to future returns. Source: HL, Lipper IM, 30/11/18
The bottom line represents his ‘style’. You can see that his chosen area has underperformed the wider market over the course of his career.
So how has he managed to beat his benchmark by more than four and a half times since 1992, as the middle line shows? How has he turned £10,000 into £431,300 – some £340,000 more than his benchmark?
While the areas Richard Pease has been hunting in haven’t been very fashionable, we know from the data we collect that he’s been able to find and invest in great companies within these less than fertile grounds. This stock selection, represented by the top line in the chart, has delivered exceptional returns.
It suggests he has innate investment talent, and that’s why we like to see positive stock selection when analysing fund managers’ track records. Our experience tells us managers with consistently good stock selection have better prospects of outperforming over the long-term.
No manager is infallible though, and no-one can make the right calls every time. When they get it wrong, the fund will fall in value.
The exceptions that prove the rule
There are a few fund managers who can successfully add value through their style, changing the areas they invest in as market conditions change. Robin Hepworth, who manages the EdenTree Higher Income Fund, is a great example. In either case it’s our in-depth analysis that lets us see exactly what they’re doing, and how repeatable we think any outperformance might be. It’s a similar story with Neil Woodford, who currently manages the LF Woodford Equity Income and LF Woodford Income Focus Funds. He’s managed to rotate his style, investing in areas that have come back into fashion. He’s also shown great stock picking ability in the past, but he’s underperformed on this front over the last two years of his career.
Finally, we’re ready to meet the fund manager.
We cross reference what we’ve learnt from our analysis with what they have to say. If we’re meeting a fund manager for the first time, we also want to understand their background and personality. What type of person are they? What motivates them? How are they incentivised?
Each time we meet a fund manager, talk to them over the phone or trade emails we make a note of what was said, and what we thought. It gives us historical perspective to fall back on, and is especially useful when a manager’s going through a tough time.
Our document for Richard Pease stretches over 15,000 words. Combining this with our quantitative analysis, it’s quite possible we know more about these fund managers than anyone else in the country.
Our research, your list
Each part of our process is designed to make sure the Wealth 50 is full of fund managers who can help you make the most of your money.
For a new fund to make it onto the Wealth 50, the final say is left to an independent vote by our investment team. We then hand over to a different part of our business who secure a great price for you.
As a Wealth 50 investor, we’ll keep you up-to-date with any new developments. For example, if we’ve just met the manager, negotiated an even better price on your fund, or your fund manager moves company, we’ll tell you.
The Wealth 50 isn’t just a list of funds. It’s your gateway to our research.
|Annual percentage growth|
Nov 13 -
Nov 14 -
Nov 15 -
Nov 16 -
Nov 17 -
|LF Woodford Equity Income||n/a*||17.8%||-0.5%||1.6%||-10.9%|
|LF Woodford Income Focus||n/a*||n/a*||n/a*||n/a*||-15.2%|
|FP CRUX European Special Situations||n/a*||n/a*||19.7%||24.6%||-8.9%|
|EdenTree Higher Income||6.4%||-1.3%||13.1%||10.3%||-0.3%|
Past performance isn't a guide to the future. Source: Lipper IM 30/11/18
*Full year performance not available.
The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.