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UK gilt funds shine in FE’s passive crown ratings

More than half of passive UK gilt funds have been awarded FE’s top accolade for their index-tracking ability, compared with just 18% of global equity funds.


Sebastian Cheek

The investment ratings and research firm handed its coveted five-crown rating to seven out of a possible 13 passive UK gilt funds (54%), but only seven out of 40 global equity funds (18%) obtained the top rating.

That said, all seven global equity funds jumped straight to a five-crown rating after meeting FE’s requirement for funds to have three-year track record to be included in the rankings.

FE’s passive crown ratings are rebalanced every six months and awarded to passive funds which top the ranking for their ability to track their benchmark over three years.

Oliver Clarke-Williams, portfolio manager at FE, said: “The high number of UK gilts funds which have been awarded five passive crown ratings is largely down to the fact that they are highly liquid and easy to replicate, whereas with global equities you’re having to buy a large amount of stocks from every region in the world.”

In the latest rebalance no funds in the property or sterling corporate bond sector received a five-crown rating.

Clarke-Williams added: “With none of the sterling corporate bond and property funds receiving a five-passive crown rating, it is clear that not all trackers are equal and some markets are significantly more difficult to replicate than others.”

FE considers 268 passive funds in its universe whose benchmarks reflect the main types of investment that a UK investor would be interested in.

Funds are ranked using a quantitative methodology based on tracking difference, tracking error and fund size.

This follows FE’s recent active crown rating rebalance published last month, which saw Neil Woodford’s Equity Income fund awarded five crowns in its first rating by FE after garnering a three-year track record.