Three exceptional active investment funds

As we’ve mentioned many times before, countless studies show that most fund managers fail to beat the market. That’s partly because active managers charge high fees (making it harder to beat the market once fees are accounted for), and partly because so many are ‘closet trackers’ – funds that hug the index tightly, preferring to underperform the market by a little consistently, rather than take big bets and risk underperforming drastically.

However, it seems that active managers can be worth the money – as long as they’re genuinely active. Five years ago, Martijn Cremers of the University of Notre Dame and Antti Petajisto of New York University came up with the idea of ‘the active share’, a measure of how a portfolio differs from the index.

They found that funds with a high active share (ie, ones that differ greatly from the index) tended to beat both the index and their less actively managed rivals. It’s a finding that has been backed up by other research.

So where can you find these truly active funds? To be considered ‘highly active’, a fund must have an active share of at least 80%. One such fund is the Jupiter European Fund, run by Alexander Darwall. It has an active share of over 90% and focuses on industrials and health care (drug groups Novozymes and Novo Nordisk are its top investments).

It mainly invests in German and Danish stocks, and has beaten the index over three- and five-year periods, returning nearly 120% over the latter period. Small-cap funds also tend to have higher active shares, partly because they have to avoid big blue-chip firms, which make up the biggest part of any index.

The Legal & General UK Alpha Trust focuses on unusual growth and value stocks – its largest holding is Aim-listed technology firm, Smart Metering Systems. While this approach has led to a high level of volatility, it has returned more than 135% over the last five years. The annual fee is 1.5%.

Of course, not all large-cap funds are closet trackers. The Martin Currie Global Portfolio Trust (LSE: MNP) is a globally focused investment trust, with an active share of 85%. Manager Tom Walker is bullish on US banks (his top holding is JP Morgan), believing them to be in better condition than their counterparts in Europe.

The fund has beaten its index over one, three and five years. It recently instituted a ‘zero-discount’ policy, which aims to buy shares when the discount to net asset value (the underlying value of the portfolio) is greater than 0.5%. The total expense ratio (TER) is 0.84%.

by Matthew Partridge


Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.