The HSBC Gif Euroland Equity fund returns to the list for a second year with an R-Squared figure of 0.98 but an active share of 58.57 per cent. But manager Frederic Leguay highlights its performance over one and five years “can rarely be seen with any existing closet tracker”.
He adds: “The Euroland Equity portfolio’s relative risk comprises of 63 per cent non-factor/non-diversifiable risk. Our current environment is characterised by low market volatility that directly influences our tracking error level and our value-driven investment management process currently drives our preference for large-cap stocks, hence tracking error can’t reliably capture the specific risk associated with our active management.”
Nyree Stewart is features editor at Investment Adviser
THE METRIC
HOW WE WORKED IT OUT
Using data from FE Analytics, we looked at all the funds in the IMA UK All Companies, North America, Europe ex UK and Global Emerging Markets sectors to identify actively managed funds with annualised R-Squared values of 0.95 or more for the three years to April 30 2014. 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 one percentage point lower than the highest tracking error of tracker funds in that IMA 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 compares the average performance of these funds with their benchmark indices and sector. Individual funds can outperform or underperform the figure for a variety of reasons such as stock selection, fees, cash holdings and manager changes.
The funds in the tables are sorted alphabetically, and it does not include any 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.
CLOSET TRACKERS
DEFINITIONS
R-Squared: A statistical measure that represents the percentage of a fund’s movements that are related to a benchmark index. In theory the more actively managed the fund, the lower the R-Squared. Index trackers carry an R-Squared value of 95-100 per cent.
Tracking error: The typical tracking error of an index tracker should be 0 per cent, but depending on the method of tracking it can be slightly higher as any changes to the index need to be reflected in the fund by buying and selling appropriate stocks.
