Consistent returns key to success

PUBLISHED : Friday, 21 February, 2003, 12:00am
UPDATED : Friday, 21 February, 2003, 12:00am

The South China Morning Post Fund Manager of the Year Awards 2002, in association with Standard & Poor's Fund Services (S&P), aim to reward fund managers for long-term, consistent outperformance relative to their peers.

The awards represent a red-letter day in the Hong Kong fund management calendar. They are widely seen within the industry as an acknowledgement of good, risk-adjusted, low-volatility performance.

Winners were chosen based on participants' risk-adjusted performance for periods ending on December 31 last year. Under S&P's methodology, the winning managers are those who deliver most consistently the best returns with the lowest historic volatility.

The awards are based on three-, five- and 10-year periods. The main group winners this year are UBS Fund Services for the three years, Threadneedle Investment Services (five years), and Investec Asset Management (10-years).

William Reidy, S&P Asia-Pacific Investment Services managing director, says it is a close race for the main titles every year the awards are held, with only minor differences setting the award-winners above those in second and third place.

Threadneedle Investment Services took a number of three-year sector awards in addition to its group award: Latin American equities, European equity ex-Britain and British equities, as well as sterling-denominated fixed income. Over five years, Threadneedle won for North American equities, Latin American equities and sterling fixed income.

UBS also won sector awards for three-year United States equities, Asset Allocation Global Neutral, Global Defensive, Global Dynamic, and European fixed income.

To be considered for a group award, managers should be fairly big and general; specifically, S&P requires them to manage at least 10 funds from 10 sectors.

In the interests of rewarding only appropriate medium- to long-term performance, the one-year category is not included in the awards this year.

This is consistent with S&P's policy of removing one-year measurements in markets it sees as sophisticated.

The one-year category was discontinued from S&P awards in Singapore, as well as most of the European award contests the L company is involved in this year, Mr Reidy says.

'We were looking at the overall maturity in the marketplace. In many of our contests around the world where the market has a fairly large and sophisticated pool of investment opportunities, we tend to either downplay or discontinue the one-year period.

'Our focus is on three to five or 10 years. We believe consistency of performance in the medium to long term is what investors should be looking for, and therefore we like our awards to reflect a similar scenario.''

It has been a historically tough few years for equity markets around the world. The S&P 500 Index was down 38.6 per cent over three years to February 7 and 11.3 per cent over five years in US dollar terms. Over the same period, the FTSE-100 Index was down 36.5 per cent over the three years and 27.6 per cent over five years, in sterling terms.

Hong Kong was down 38.6 per cent over the three years on the MSCI Hong Kong index in Hong Kong dollar terms, and the Singapore Straits Times Index was off 43 per cent in Singapore dollars.

Among special sectors, gold stood out as a star performer. According to Trustnet, the HSBC Global Gold Index was up 46.3 per cent over three years in sterling terms and 23.3 per cent over five years.

Mr Reidy is reluctant to say how a manager can successfully outperform in poor market conditions.

'You really need to beam in on the benchmark, because with funds it is all about relative performance,'' he says.

'That is, relative to other funds in a similar sector, so you have an apples-to-apples comparison. In general, over the past three years the equity markets have been challenged. It would be more the exceptional fund that has shown a positive return in the past two to three years.

'However, when it comes to fixed income and money market funds, you have seen some very good performances in the past three years.''

Coutts was a stand-out winner in fixed income and money markets, winning awards for US dollar fixed income and sterling and euro money market funds over five years, and sterling money market and European fixed income over three years. Goldman Sachs took the awards for three- and five-year US dollar money market performance.

With the increasing popularity of hedge funds among individual and institutional investors, S&P has been getting to know the managers and their strategies. Mr Reidy says the complexity of a manager's activities made hedge-fund performance 'challenging to recognise''. But he did not rule out including them in future Fund Manager of the Year awards.