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Performance Measurement - October 10, 2008

Alpha League Table UK

The reference rankings in Europe

This fourth edition of the Alpha League Table 2008 looks into asset management in the United Kingdom. It is, once again, confirmation that, when it comes to alpha, UK asset managers outperform their counterparts on the continent.

The year’s results are better than last year’s: average alpha increased (approximately 30 basis points) to 2.9% and the average frequency of alpha (the number of funds, expressed as a percentage, delivering positive alpha) is 52.2%; it was 46.3% last year.

Once again, a specialist is at the top of the UK Alpha League Table. With a substantial increase in average alpha, Jupiter takes the top spot; it was in second place last year. With its average alpha of 4.23% and the frequency with which alpha is delivered coming to 73.75%, the firm posts an impressive performance.

Artemis Fund Managers, in its first appearance in the ALT, is in second place. Average alpha is 4.51% and frequency 66.1%. In third place, just as it was last year, is the firm M&G. The firm’s alpha was measured at 4.38% and its frequency at 66.45%, an improvement on last year’s figures.

One of the features of the British market is that 70% of the assets of funds registered in the UK* (unit trusts and OEICS) are managed in shares. It is worth noting too that between June 2007 and June 2008 assets under management in this asset class fell by only 14% (£45.7 billion), largely as a result of market effects, as redemptions accounted for barely £5 billion (11% of the fall).*

By comparison, the assets under management in French-registered equity funds fell by 30% over the same period, with redemptions accounting for 20% of this fall.

Of the 108 firms involved in the management of equities, this third edition of the Alpha League Table UK highlights the results of the top ten of the forty firms that met the requirements for inclusion in the table.

Five of the asset management firms are making their first appearance in the top ten; the rankings also confirm the robustness of the asset management expertise of the firms that are making repeat appearances. The results are better than those of last year: average alpha has climbed to 2.9% (an increase of nearly 30 basis points) and the average frequency of alpha (the number of funds, expressed as a percentage, that deliver positive alpha) is 52.2%; it was 46.3% last year.

The results posted by the firms in the top ten have improved as well, and some companies with very broad ranges (Aberdeen, Schroders, Fidelity, Invesco) and results similar to those of last year fell out of the top ten.

Specialists dominate the rankings once again, although a bank and two insurers are present as well.

As with the asset management studied in earlier issues of the Alpha League Table (France, Italy, Spain, and, to a lesser degree, Switzerland, which has a more international character), it is in the home market that the greatest number of 4-stars and 5-stars funds, synonymous with positive alpha over the period of the study, are found. 30% of the outperforming funds are thus concentrated in the UK geographic zone.

Again, as with the other studies, it is the following zones that have the largest number of funds: international equities (18%), Europe (16% including Europe excl. UK), and North America (9.7%). The breakdown of the major investment zones is largely identical to that of last year.

It is worth noting that the number of Japan funds producing alpha fell, and that the number of outperforming Europe funds increased.

The highest alpha figures—between 4.5 and 6%—were generated by funds invested in Asia, Latin America, and Emerging Europe. Of course, these zones account for only 5% of the fund offerings in our rankings.

The zones with the largest number of funds manage to maintain excellent average alpha, in some cases higher than that posted last year. Such is the case of vehicles invested in international equities and in North America, where there the respective averages for alpha are 3.8% and 2.6%.

The alpha produced in Europe equities fell slightly. Funds invested in UK equities generated average alpha of approximately 2.2%. It is frequency that sets UK asset managers apart from their counter parts on the continent. On average, 52.2% of UK funds deliver positive alpha. By comparison, frequency of positive alpha is 42.4% for Swiss funds, 30.7% for French funds, and 30% for Spanish funds.

In addition, the average alpha produced by UK asset management firms is higher than that of other European asset managers (2.2% for France, 2.4% for Switzerland, 2% for Spain). It is in international equities that the superiority of UK asset managers is most evident. In this zone, they generate average alpha of 3.8%, whereas French asset managers have an average of 2.64% and the Swiss 2.42%.

As has been observed in other countries, UK asset managers have reallocated a greater share of their portfolios to growth styles. In funds invested in Europe, this reallocation took place at the expense of small-capitalisation equities. In Asia, international equities, and the UK, by contrast, value styles fell out of favour.

All the same, whether in the home market, North America, or Europe, the mark of small-cap styles on UK asset managers is much stronger than it is for French and Swiss asset managers. On average, in fact, the share of small caps is 47% in funds invested in the UK equity portfolios, 48% in Europe equities, and 29% in international equities.

* Source: Investment Management Association