However, the recent correction could give investors the chance to enter the market at a good time, so long as it proves to be a temporary blip on an otherwise upward trajectory.
Here are five funds for investors who think this is the case.
Cazenove UK Smaller Companies
"In the UK smaller companies arena, I would go for Cazenove UK Smaller Companies," Rowan Dartington’s Tim Cockerill said.
"You have the issue with Schroders' acquisition, but I am being positive on this and I think the fund will remain intact and I think it should be beneficial for all involved."
| Name | Cazenove UK Smaller Companies |
|---|---|
| Fund Size | £405.7m |
| Min. Investment | £1,000 |
| OCF | 1.61% |
| Yield | N/A |
| Manager | Paul Marriage & John Warren |
| FE Crown Rating | 5 Crowns |
Source: FE Analytics
The five crown-rated Cazenove UK Smaller Companies fund was launched in 1996 and has been run by FE Alpha Manager Paul Marriage since March 2006. He was joined by John Warren in September 2010.
According to FE Analytics, the £405.7m portfolio is the number-one fund in the IMA UK Smaller Companies sector in the time since Marriage took over.
Its returns of 130.84 per cent mean it has beaten its FTSE Small Cap ex IT index and the likes of FE Alpha Manager Giles Hargreave’s Marlborough UK Micro Cap Growth and FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies fund.
Performance of fund vs sector and index since March 2006
Source: FE Analytics
Cazenove UK Smaller Companies is also the top-performing fund over three years, the second best over five years and third over one year.
Franklin UK Mid Cap
Cockerill says that for mid cap exposure he would go for Franklin UK Mid Cap because he likes the style and long-term track record of its FE Alpha Manager Paul Spencer.
Franklin UK Mid Cap is the best-performing portfolio in the IMA UK All Companies sector over the last decade, with returns of 500.34 per cent.
| Name | Franklin UK Mid Cap |
|---|---|
| Size | £754m |
| Min Investment | £1,000 |
| OCF | 1.58% |
| Yield | 0.74% |
| Manager | Paul Spencer |
| FE Crown Rating | 4 Crowns |
Source: FE Analytics
FE Alpha Manager Paul Spencer took over the £754m fund in February 2006 from fellow FE Alpha Manager Leigh Himsworth.
The fund is top quartile over one, three and five years. It has also kept up with the rally, posting top-quartile numbers over the last three and six months.
It has returned 90.87 per cent over five years, while its benchmark – the FTSE 250 ex IT index – and sector have returned 59.88 per cent and 29.56 per cent, respectively.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Although the fund has tended to be more volatile than other funds in the sector, it has a lower annualised score than its benchmark over this period.
Liontrust Special Situations
Cockerill says investors who want a long-term growth fund should consider Liontrust Special Situations because of its managers’ record of picking quality companies.
"Taking a three-year view I think it is a very sound fund," he said.
"That is because, due to their process, Julian Fosh and Anthony Cross only invest in quality companies."
The five crown-rated Liontrust Special Situations is the second-best performing fund in the IMA UK All Companies sector over both three- and five-year periods and is a top-quartile performer over one year.
It has lagged the recent rally, dropping into the third quartile over six months, with returns of 8.76 per cent.
| Name | Liontrust Special Situations |
|---|---|
| Size | £761.9m |
| Min Investment | £1,000 |
| OCF | 1.88% |
| Yield | 0.56% |
| Manager | Anthony Cross & Julian Fosh |
| FE Crown Rating | 5 Crowns |
Source: FE Analytics
However, since the £761.9m fund’s launch it has returned 166.96 per cent while the FTSE All Share and the IMA UK All Companies sector have returned 57.44 per cent and 51.45 per cent, respectively.
Performance of fund vs sector and index since Nov 2005
Source: FE Analytics
Liontrust Special Situations has been consistent over this time: it and FE Alpha Manager Nick Train’s CF Lindsell Train UK Equity fund are the only ones in the sector that have been top-quartile performers over each of the last five calendar years.
JOHCM UK Dynamic
Neil Shillito, director at SG Wealth Management, is a big fan of JOHCM UK Dynamic and is going to buy it for his MFM SGWM Managed fund.
"It is an unusual fund as he [Alex Savvides] has been running it for about five years and they gave him a brand new mandate," Shillito said.
"It is strange because companies normally give a new manager a completely new fund – but now it truly is his fund with all his own ideas."
"It is an exciting fund because it is still quite small and nimble and has done incredibly well against the FTSE All Share. I would expect that fund to do very well," he added.
| Name | JOHCM UK Dynamic |
|---|---|
| Size | £32.6m |
| Min Investment | £1,000 |
| TER | 1.50% |
| Yield | 2.83% |
| Manager | Alex Savvides |
| FE Crown Rating | 1 Crown |
Source: FE Analytics
FE Alpha Manager Savvides’ JOHCM UK Dynamic fund is a top-quartile performer in the IMA UK All Companies sector over one, three and five years.
It has also kept up with the recent rally, with its six-month returns of 15.43 per cent making it a top-quartile performer over six months.
It has returned 72.2 per cent since its launch in June 2008, double that of the FTSE All Share.
Performance of fund vs sector and index since June 2008
Source: FE Analytics
The fund currently only has £32.6m in assets under management. Savvides recently told FE Trustnet that one of his institutional investors removed a lot of their capital in one lump sum, reducing the fund from £20m to £7m "overnight".
Standard Life UK Equity Income Unconstrained
Shillito likes Thomas Moore’s Standard Life UK Equity Income Unconstrained fund because it taps in to areas of the market ignored by its peers.
"It is an equity income fund, but he isn’t selecting stocks specifically for their dividend yield," Shillito said.
"He looks to other areas of the market for companies that can produce good returns, and yes yields are handy, but he isn’t looking for a set yield for his fund."
"That means that returns can be quite lumpy, but it is a very good fund that looks for companies with good potential for growth," he added.
| Name | Standard Life UK Equity Income Unconstrained |
|---|---|
| Size | £121m |
| Min Investment | £1,000 |
| OCF | 1.91% |
| Yield | 3.63% |
| Manager | Thomas Moore |
| FE Crown Rating | 1 Crown |
Source: FE Analytics
Standard Life UK Equity Income Unconstrained was launched in March 2007. Moore took over from Dominic Byrne in January 2009.
Since then it is the fourth best-performing fund in the IMA UK Equity Income sector, with returns of 118.16 per cent.
Performance of fund vs sector since Jan 2009
Source: FE Analytics
However, the fund has been considerably more volatile than the sector over this time.
The fund also benefited from the recent rally in UK equities, posting top-quartile performance over one year, and six and three months.