If the markets are on the up, Ed Legget’s Standard Life UK Equity Unconstrained and Anthony Eaton’s JM Finn Global Opportunities funds are likely to be right at the top of the performance tables.
However, during market sell-offs, these cyclically focused mangers tend to underperform.
Similarly, during a falling market, Neil Woodford’s two income portfolios and Aberdeen’s emerging market funds are likely to protect more effectively against the downside than their peers, thanks to their emphasis on quality, defensive companies.
However, there are some funds that do not seem to care what way the market is going – they have the flexibility to outperform during both good and bad times.
For anyone unsure about the outlook for markets at this point – and they won’t be alone – and who wants a fund that can deliver either way, here are five funds to consider:
Liontrust Special Situations
This five crown-rated fund is perhaps the best example of a fund that does not care which way the market is going, illustrated by the fact that it has beaten its benchmark and peers in each of the last five calendar years.
Year-on-year performance of fund vs sector and index
| Name | 2012 returns (%) |
2011 returns (%) | 2010 returns (%) | 2009 returns (%) | 2008 returns (%) |
|---|---|---|---|---|---|
| Liontrust - Special Situations | 22.36 | 7.54 | 36.14 | 41.2 | -25.9 |
| FTSE All Share | 12.3 | -3.46 | 14.51 | 30.12 | -29.93 |
| IMA UK All Companies | 15.05 | -7.04 | 17.53 | 30.4 | -31.96 |
Source: FE Analytics
FE Alpha Managers Julian Fosh and Anthony Cross have managed to protect as effectively against the downside as they have in outperforming on the upside.
The standout year for the fund was perhaps 2011; it managed positive returns of more than 7 per cent, when its sector and All Share benchmark were down 7.04 and 3.46 per cent respectively. However, while most who did this well then went on to lag the market during the up market of 2012, Liontrust Special Sits beat the All Share by more than 10 percentage points in 2012.
Tim Cockerill (pictured), head of collectives research at Rowan Dartington, says this consistency is a result of the managers’ stringent stockpicking process, rather than their timing of the market.
"They are active managers, but not market timers," he said. "Their turnover isn’t that high – in fact it’s quite low compared to their peers."
"In a sense, they’re not doing anything special in that they’re looking for businesses that have a long-term economic advantage over their rivals."
"They tend to have above-average profits and margins, which is associated with safety, and means they do better during sell-offs."
"I think you’ll find the fund will probably lag during a very steep rise in the markets, but the underlying quality of these companies means they are always going to be popular in the longer term."
With less than £1bn assets under management (AUM), Cockerill says the managers have the flexibility to invest across the market spectrum, which helps them to outperform in both up and down markets.
"The fund is at the perfect size at the moment; however, inflows shouldn’t be a problem for some time – it could double and I don’t think they’d have any issues," he added.
The fund requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.92 per cent.
JOHCM UK Equity Income
Perhaps more than most sectors, UK Equity Income funds are defined by having either a defensive or an aggressive focus.
Many are packed full of quality blue chip companies, which tend to lag during market rallies, while others are focused more on cyclicals, or have a specific small to mid cap focus.
JOHCM UK Equity Income has a mixture between the two.
Managers James Lowen and Clive Beagles invest across the market spectrum, with big positions in multi-national companies such as GlaxoSmithKline and HBSC, as well as smaller FTSE 100 stocks such as RSA Insurance, and FTSE 250 companies including 3i and DS Smith.
All of these companies are in the fund’s top-10.
The fund’s multi-cap focus, and exposure to both defensive and cyclical sectors has allowed it to outperform during both up and down markets.
It significantly beat its All Share benchmark and sector average during the up markets of 2009, 2010 and 2012, and while it performed only in line with the market in the down market of 2011, it significantly outperformed in 2008.
According to FE data, it was down 23.74 per cent – more than 6 percentage points less than the All Share.
This has translated to very strong cumulative outperformance over a five-year period.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund currently has £1.4bn assets under management (AUM), but JOCHM has said it is looking into ways of slowing flows into the fund, which suggests it is on the brink of soft-closure.
This means the managers should stay flexible enough to invest across the FTSE 350 and beyond.
"It’s another one that has flexibility and a strict underlying process to picking stocks," added Cockerill.
JOHCM UK Equity Income requires a minimum investment of £1,000 and has a TER of 1.28 per cent – excluding performance fee.
BlackRock European Dynamic
"This is another fund that displays these kinds of characteristics," said Cockerill. "It’s got a long-term focus, but as its name suggests, it’s dynamic enough to take advantage of shorter-term opportunities."
This dual focus has worked very well for the fund, as shown by FE data. It has beaten its FTSE World Europe ex UK benchmark in eight of the last 10 years, significantly outperforming in both up and down markets.
Over a cumulative 10-year period, FE Alpha Manager Alister Hibbert’s portfolio has returned 399.68 per cent, making it the best-performing fund in the entire IMA Europe ex UK sector. Its benchmark is up 195.56 per cent over this time.
The manager runs a concentrated portfolio of around 45 holdings, with no one company accounting for more than 5 per cent of assets.
Consumer products are currently Hibbert's favourite area, with a 27 per cent sector weighting.
The £1.3bn BlackRock European Dynamic fund requires a minimum investment of £500 and has a TER of 1.67 per cent. It has five FE Crowns.
Newton Asian Income
While income-focused funds tend to be associated with outperformance in tougher market conditions, Cockerill says Newton Asian Income also displays strong performance during rallies – even though emerging markets tend to rise very steeply in such conditions, in what Cockerill refers to as "a dash for trash".
"Newton Asian Income fits the bill, despite the fact that it’s got a very long-term outlook," he said.
According to FE data, Newton Asian Income is the fifth-best performing fund in IMA Asia Pacific ex Japan sector since its launch in November 2005, with returns of 173.36 per cent.
It has beaten its sector and FTSE Asia Pacific ex Japan in four of the last five years and in the one year that it did fall short, it still returned 49.81 per cent.
The standout year was 2011, when it lost just 1.45 per cent. No fund in IMA Asia Pacific ex Japan came close to matching this figure.
Jason Pidcock’s £3bn fund requires a minimum investment of £1,000 and has a TER of 1.66 per cent. It has five FE Crowns.
Cazenove UK Opportunities
Newly appointed FE Alpha Manager Julie Dean is one of the most talked-about managers in the business at present, thanks to the consistent performance of her £991m Cazenove UK Opps fund.
It is another multi-cap portfolio, with a mixture of FTSE 100 and FTSE 250 companies in the top-20.
While she is not a market timer, she says she frequently changes her holdings in order to capitalise on cheap valuations.
Dean told FE Trustnet in a recent interview that she attempts to beat the market "year in, year out" – something that she has done successfully of late.
Year-on-year performance of fund, sector and index
| Name | 2012 returns (%) | 2011 returns (%) | 2010 returns (%) | 2009 returns (%) | 2008 returns (%) |
|---|---|---|---|---|---|
| Cazenove - UK Opportunities | 33.3 | 1.3 | 20.09 | 34.49 | -23.29 |
| FTSE All Share | 12.3 | -3.46 | 14.51 | 30.12 | -29.93 |
| IMA UK All Companies |
15.05 | -7.04 | 17.53 | 30.4 | -31.96 |
Source: FE Analytics
According to FE data, the last calendar year that Cazenove UK Opps did not outperform its IMA UK All Companies sector average was in 2006.
The fund is up more than 100 per cent over five years, making it the third-best performing portfolio in the sector.
The five crown-rated fund requires a minimum investment of £1,000 and has a TER of 1.56 per cent.