Edhec-Risk
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Performance Measurement - November 10, 2006

Alpha League Table UK

The reference rankings in Europe

UK asset managers top the rankings in producing alpha

The fourth edition of the Alpha League Table looks at asset management companies in the UK. Of the 66 entities eligible for analysis, only the 25 leading companies are singled out; this selection is based on the number of funds available for analysis and the regularity of the alpha they produce.

Two factors distinguish UK asset managers from their counterparts in mainland Europe, who were the subject of earlier analysis: the average level of alpha produced, which places them at the top of the European rankings, and the number of asset management companies producing alpha. Compared to the results obtained by leading asset managers in France (Financière de l’Echiquier — 4%), Italy (Anima — 1.5%) and Spain (Gesbankinter — 3%), the figures from the UK are truly remarkable, with the top five companies obtaining a score of at least 2.5%.


Source: EuroPerformance Style Analytics (www.styleanalytics.com)

AXA Framlington takes the top spot with a score of 4.64%. With more than 10 funds, the average level of alpha produced is 7.09% and the percentage of alpha-producing funds within the company’s active management range is nearly 65%. Framlington, which is a former HSBC subsidiary, was purchased by the AXA Investment Managers Group at the end of 2005. AXA Framlington is now a leading franchise specialising in equity investments. Its investment process is active, using a GARP approach.

M&G Group takes second place with a score of 2.83%, average alpha levels of 4.52% and 62.14% in terms of its alpha-producing funds. It is fully owned by Britain’s leading insurance company, Prudential, and is ranked sixth in terms of assets under management. As part of the Prudential Group, M&G has a staff of more than 200 and serves to spearhead the company’s expansion beyond the UK.

Behind the two insurance subsidiaries is Aberdeen Asset Management, with a score of 2.78%. Again, this company shows a high level of alpha creation, with 65.66% of the selected funds having positive alpha. Its average alpha level is 4.32%. This Scottish company divides its operational management between Aberdeen, where it has its head office, and Glasgow. Since 2003, it has enjoyed steady growth and is now among the first quartile of companies in terms of assets.

The rankings of the top 25 companies are made up of asset management companies that are subsidiaries of insurance companies (9), independent asset managers (9) and companies that belong to banking groups (7). Average alpha for the entire list is 3.11%, with this figure being slightly higher among the insurance companies (3.62%) and asset managers (3.22%). The banking subsidiaries post average alpha of 2.61%.

Independent asset management companies occupy 5 of the top 10 spots: Artemis Investment Management (4th); Taube Hodson Stonex (5th); Rensburg Sheppards (8th); Investec Asset Management (9th); Schroders (10th); and Invesco (11th). Farther down the list are Fidelity Investment Management (20th) and Henderson Global Investors (23rd).

AXA holds two places in the rankings, with AXA Framlington at the top and AXA Rosenberg in 6th place. The insurance subsidiaries occupy the ranks beyond 20th place, with the exception of Prudential Unit Trust, which is ranked 16th and F&C Asset Management (18th). Allchurches Investment Management is ranked 21st, followed by Gartmore Investment Management (22nd), Allianz Global Investors (24th) and, finally, Aviva (25th).

The banking subsidiaries are placed in the second half of the rankings, with the exception of Old Mutual Asset Managers (7th), a subsidiary of Old Mutual, one of South Africa’s leading financial services groups. 12th place is held by Jupiter Asset Management, a subsidiary of one of Germany’s largest banks — Commerzbank AG. The subsidiary of Julius Baer Group, GAM (Global Asset Management) is ranked 13th, followed by Lazard Asset Management (14th) and Merrill Lynch Investment Managers (15th). The Mellon Group subsidiary, Newton Investment Management takes 17th place, while First State Investment, a subsidiary of the Commonwealth Bank of Australia, also makes it into the top 25, in 19th place.

Unlike the analysis of previously-studied countries, here the role of foreign companies is significant. Our rankings show 10 British companies among the top 25 alpha performers, with 7 American companies, 2 apiece from Germany and Australia and one each from South Africa, France, Switzerland and the Netherlands.

Of the 898 funds in the United Kingdom that are actively managed and for which historical data is available over a three-year period, 43.4% produce significant and persistent alpha. But how can we characterise the management techniques of these successful funds?

A breakdown of the alpha funds by investment zone reveals a majority of UK funds (26.5%). Those invested internationally represent 16.4% of the 4 and 5 star funds, while funds invested in North America are also a major source of alpha (13.8%). Europe is in 4th place with 9.4%, ahead of sector funds (8.1%). Asia and Japan follow, with shares of 7.9% and 4.6% respectively, while emerging markets (European emerging markets + emerging markets) represent 7.4%. All the major investment zones are included: USA, Asia, Japan and Europe. However, investment in the Euro zone countries is not particularly strong.


Source: EuroPerformance Style Analytics (www.styleanalytics.com)

Average levels of alpha are high in all of the investment zones. Asia and the sector funds provide the highest levels, with figures of almost 5%, while funds invested internationally, with average alpha of 3.5%, reflect the high quality of asset management in the UK, where a large number of funds are managed. Europe, the emerging markets and Japan also post alpha levels of between 3% and 3.5%. By contrast, funds that invest in UK securities show alpha of less than 3%.


Source: EuroPerformance Style Analytics (www.styleanalytics.com)

On average, the alpha funds favour large cap stocks, with the proportion of small caps making up just 30% of portfolios. This average is the result of markets with a heavy emphasis on style. In emerging markets or in Asia (ex Japan), the notion of small caps arouses no interest and style approaches focus solely on a valuation of the company’s securities (growth vs. value). On European markets, because fund managers have more refined and reliable knowledge of the economic environment, the proportion of small caps in portfolios tends to be higher. This is the case for ‘Europe’ portfolios, in which small and mid caps exceed 50%. In more geographically diverse funds, however, this proportion is at less than 20%, as in international funds.


Source: EuroPerformance Style Analytics (www.styleanalytics.com)

To conclude, let us consider the earlier country rankings, which were revised on 30 June 2006, so as to compare the different sets of results. 9,000 actively managed funds are given a score each week in our database, based on the alpha they produce. This considerable source of information allows us to monitor asset management in Europe1 and establish rankings based on an objective criterion (alpha), while adequately accounting for a portfolio’s risks. The United Kingdom comes out easily on top, both in terms of the percentage of funds producing alpha (43.4%) and the average level of alpha produced (2.95%). On a market that is very much international and is dominated at a European level by major institutions, Spain takes second place. France and Switzerland show similar performances, with a frequency of alpha-producing funds of around 33% and an average alpha level of 2.6%, while Italy takes 5th place on these European rankings. On average, among the main European countries in terms of active asset management, slightly over a third of funds produce an average alpha of 2.6% ( as at 30 June 2006).


Source: EuroPerformance Style Analytics (www.styleanalytics.com)

1 Neither German companies nor funds governed by German law are included in these rankings.

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