Performance Measurement - October 10, 2007

Alpha League Table UK

The reference rankings in Europe

For the fourth edition of the season, the Alpha League Table focuses on the United Kingdom. This ranking of asset management firms confirms the leadership of the biggest names in the City of London.

Aberdeen is at the top of our rankings. Its excellent rankings last year are thus confirmed. It not only offers substantial average alpha, but is also capable of generating it from a significant portion of its actively managed funds. In second place is Jupiter Asset Management, a subsidiary of one of the largest German banks, Commerzbank AG. Third place belongs to M&G Securities, a subsidiary of Prudential, the leading British insurance company.

The rankings are dominated by the firms that attract the largest asset inflows in their countries. So it is no surprise to see such firms as Schroders, Fidelity, Invesco, or M&G Securities among the top ten.

Of the fifty-two firms eligible for inclusion in the table (minimum selection requirements in terms of number of alpha funds and steadiness of alpha), only the top ten were ranked in the table. The winner of the 2007 edition is an asset manager. Aberdeen takes the coveted top spot in the rankings with a score of 2.82%. Frequency of alpha is high, with 81.2% of selected funds generating significantly positive alpha. Average alpha is 3.48%. Aberdeen is a Scottish fund, and day-to-day management is divided between Aberdeen (headquarters) and Glasgow. The firm has expanded greatly since 2003 and in terms of assets under management it is now in the top quartile.

Jupiter, with a score of 2.68%, takes second place. The average alpha of more than fifteen funds is 3.42% and the frequency of actively-managed funds generating alpha stands at 78.5%.

M&G Securities Ltd takes third place with a score of 2.51%. This score is the result of average alpha of 4.38% and a frequency of alpha funds of 57.99%. In fourth place is Old Mutual Asset Managers, a subsidiary of a leading financial services corporation from South Africa. Old Mutual has an overall score of 2.17%--average alpha is 3.24% and frequency of alpha funds is 66.7%. Schroders, with a score of 1.71%, is in fifth place. Average alpha is 2.89% and the frequency of outperforming funds is 59.02%.

Fidelity, in sixth place, generates average alpha of 2.36% and has a frequency of alpha funds of 68.13%, for an overall score of 1.61%. Investec Fund Managers Ltd shares seventh place with Invesco UK Ltd, both with scores of 1.48%. Investec had average alpha of 2.87% and a frequency of 51.73%. Invesco had slightly lower alpha of 2.51% but a slightly higher frequency of 58.69%.

Ninth place is a tie between Blackrock Merrill Lynch and JP Morgan Fleming Asset Management, both with scores of 1.47%. For Blackrock Merrill Lynch average alpha comes to 2.24% and frequency to 65.76%. For JP Morgan, average alpha is 2.96% and frequency is 49.76%.

Of the 975 actively managed UK equity funds with a track record of at least three years, 49.3% generate significant and persistent alpha. How then to characterise the management of these high-performing funds?

The UK emerges as a favoured destination (31.9% of alpha funds) when alpha funds are broken down by investment zone. Funds investing internationally account for 20.5% of all four- and five-star rated funds. Funds investing in US securities (9.8%) are also a significant source of alpha. Asia (not counting Japan) is in fourth place at 5.8%, ahead of Europe funds at 4.3%. Asia (including Japan) and Japan alone are next, with 4.3% and 4.0%. Emerging markets (emerging Europe markets and emerging markets) account for 5.3%.

All the major investment zones are represented: the USA, Asia, Japan, and Europe. By contrast, investment in countries in the Euro zone is not particularly high.

Average alpha is high in all investment zones. Asia and sector funds offer the greatest opportunities, with alpha levels of 5%. The large number of international funds, with average alpha of 3.0%, is characteristic of the quality of UK asset management. Europe, emerging markets, and Japan generate average alpha of between 2% and 3%. Funds invested in UK securities, however, have an average of less than 3%.

On average, the alpha funds favour large caps, with small caps limited to 30% of the portfolio. This average is the result of markets strongly characterised by style. In emerging markets or in Asia (not including Japan), the notion of small caps is simply irrelevant, and style-based approaches take into account only the valuation of company stock (growth vs. value).

In European markets, managers have greater knowledge of the economy and the share of small caps tends to be greater. This is the case for Europe portfolios, where the share of small and mid caps exceeds 50%. By contrast, for the most geographically diversified funds—international funds, for example— this share may fall below 20%.

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