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7IM celebrates the third anniversary of the European (ex UK), UK and US 7IM Equity Value Funds

22 May 2018

7IM has marked the third birthday of three of our four systematic equity funds, with the fourth fund focused on Emerging Markets due to celebrate its three year milestone in July.

7IM has marked the third birthday of three of our four systematic equity funds, with the fourth fund focused on Emerging Markets due to celebrate its three year milestone in July.

Of the three funds with a three year track record, two have outperformed their benchmarks. As of 30 April, the 7IM European (Ex. UK) Equity Value Fund had returned 34.41% since inception versus the 30.38% of its MSCI Europe ex UK benchmark. The 7IM UK Equity Value Fund has delivered performance of 24.09% versus the 20.49% by the MSCI UK Index over the same timeline.

The 7IM US Equity Value Fund meanwhile has underperformed its MSCI US Index benchmark returning 42.26% versus 48.01%. The underperformance is mainly due to the minimal allocation to the so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google), which have help drive the performance of the broader stockmarket. These stocks delivered some 20% of the S&P 500’s total performance in 2017 alone despite only making up some 10% of the index.

The funds are comparable to traditional active strategies and are similarly concentrated. As such, the 7IM European (Ex. UK) Equity Value Fund currently holds just 67 of the 342 stocks listed in its benchmark (the MSCI Europe Ex. UK Index), the 7IM UK Equity Value Fund 52 of its benchmark’s 103 stocks (MSCI UK Index) and the 7IM US Equity Value Fund holds 101 of the 631 stocks in its benchmark (MSCI US Index).

The fund is managed by an algorithmic strategy which the team sees as every bit as discerning as a value orientated, high conviction fund manager view. However, this comes without the potential for emotion and behavioural biases and at a much lower cost. The algorithm looks at the profitability of a company and the cash flows it is generating, not just the book value of assets and analyses companies to identify those it ‘likes’ the most. These stocks are then invested in above their weight or percentage of the index, while the others stocks are eliminating or held in smaller percentages than in their levels in the index.

However, occasionally the team has stepped in when market factors have led to the systematic strategy being overridden because the computer can only deal with numbers. An example was at the height of the VW emissions scandal, for instance, when the system was demanding that we buy more stock given there was a disconnect between the share price and historic accounting data. The same happened with Petrofac after the Serious Fraud Office started its investigation in relation to Unaoil.

Prior to the appointment of Dr Alessandro Laurent, who heads the team, 7IM accessed systematic strategies via ETFs, and had also started to use external fund managers. The decision to bring this in house was based on cost – running an in-house systematic strategy was cheaper than using external managers – but it also gave us the opportunity to build exactly the strategy we wanted.

The ongoing charges figure (OCF) of the developed market 7IM Equity Value Funds (EVFs) remains at 0.35% – a level not dissimilar to many tracker funds. However, while a pure tracker is likely to underperform its benchmark when costs are taken into account, these automated strategies aim to outperform over the medium to long term.

 

Source: Fund data is the C Income share class total return sourced from Bloomberg and is net of fund charges. All performance and benchmark data was sourced at 12pm on 30 April.

The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future.

Any reference to specific investments are included for information purposes only and are not intended to provide investment or stick recommendations to individual investors. The investments detailed here may not be suitable and investment advices should be sought before investing.

The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.
The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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