This has meant that a number of UK focused managers have been able to take advantage of improving employment and housing data by upping their exposure to domestic-orientated companies.
Certainly, experts have highlighted that the likes of the UK housebuilders and the banks have been some of the major drivers of the rally so far this year, with the FTSE All Share returning 16.05 per cent in 2013.
However, traditionally the advantage of investing in UK has been its international exposure and though the areas such as emerging markets and Asia Pacific have largely disappointed recently, UK managers can also access longer term growth themes from those regions by holding FTSE-listed multinationals.
Therefore in the next of the series, we look at FE’s top-rated UK growth funds. This list of funds takes into account FE Alpha Manager, group and crown ratings as well as whether the fund is including in the AFI indices.
The ratings page on FE Trustnet helps to identify the top-rated funds. Click here to do your own customised search.
All of the three fund’s mentioned also feature in the FE Select 100.
AXA Framlington UK Select Opportunities
• FE Crowns: 4
• FE Alpha Manager rating: Yes
• FE AFI: Aggressive, Balanced and Cautious
• FE Group rating: Highly commended
FE Alpha Manager Nigel Thomas (pictured) is one of the most experienced and respected managers in the UK growth space, as shown by the fact it features in all three of the FE’s AFI indices.
The manager has a free reign to invest across the UK market, which has helped the fund outperform over most time frames.
According to FE Analytics, the AXA Framlinton UK Selected Opportunities fund has been a top quartile performer in the highly competitive IMA UK All Companies sector with returns of 215.86 per cent, nearly 80 percentage points more than the returns of the FTSE All Share. Performance of fund versus sector and index over 10yrs
Source: FE Analytics
Thomas’ fund also boasts top quartile returns over three and five years.
Though the manager has the flexibility to invest across the FTSE All Share, he is currently very light in small caps. Instead, he holds more than half of the funds £4.5bn assets in FTSE 100 stocks and a further 34.17 per cent in the FTSE 250.
The fund features on the FE Select 100 because of Thomas’ experience and his proven ability to add value over the long term. However the fund may struggle in a fast rising market, as FE Research’s Charles Younes explains.
“The portfolio is well positioned to generate outperformance in the current economic environment,” Younes said.
“Thomas has reduced his exposure to smaller companies, which should protect the fund from sharp losses, and still has little appetite for financials or mining companies as stocks in these sectors have experienced large price fluctuations over the past few years.”
“A positive upturn in investor optimism, however, will negatively impact the fund’s relative performance,” he added.
The fund has an ongoing charges figure (OCF) of 1.61 per cent and requires a minimum investment of £1,000.
JOHCM UK Dynamic
• FE Crowns: 4 Crowns
• FE Alpha Manager: Yes
• FE AFI: No
• FE Group rating: Highly commended
FE Alpha Manager Alex Savvides is regarded of one of the most exciting talents in the UK market.
His JOHCM UK Dynamic funds is still relatively small in stature with assets under management totalling £73m, however it has been one of the best performers in the IMA UK All Companies sector since its launch in June 2008.
Our data shows that since inception, the fund has been the fourteenth best performing fund in the sector with returns of 94.6 per cent, which is more than double the amount of its FTSE All Share benchmark.
Performance of fund versus sector and index since June 2008
Source: FE Analytics
JOCHM UK Dynamic also sits in the top quartile over one, three and five years.
Savvides’ JOHCM UK Dynamic fund is a type of special situations portfolio, as the manager looks for companies that are either restructuring their business model, in a period of recovery, or whose growth is undervalued by the market.
The portfolio differs from the majority of its competitors as it offers its investors a degree of income potential. The JOHCM fund currently yields 2.83 per cent.
Savvides’ investment style and the fund’s performance have meant it was included in the FE Select 100 in the recent rebalancing.
The JOHCM UK Dynamic fund has a minimum investment of £1,000 and has a total expense ratio (TER) of 1.5 per cent, though it does have a performance fee if the fund beats its benchmark over on year.
Cazenove UK Opportunities
• FE Crowns: 5 Crowns
• FE Alpha Manager: Yes
• FE AFI: Aggressive and Balanced
• FE Group rating: N/A
The five crown rated Cazenove UK Opportunities fund – which is headed up by FE Alpha Manager Julie Dean (pictured) – has proven to be very popular with investors with its assets under management growing from $660m to £2.1bn over the last 12 months.
However, the fund’s short, medium and long term performance has merited the attention.
Our data shows that Dean’s fund sits in the top quartile of the IMA UK All Companies sector over one, three, five and 10 years.
The best of those relative performances has been over five years as the fund has been the third best performing portfolio in the sector with returns of 158.49 per cent, which is close to 100 percentage points more than both its competitors and the FTSE All Share.
Performance of fund versus sector over 5yrs
Source: FE Analytics
Dean uses the business cycle method when it comes to investing and as a result the fund’s turnover tends to be quite high, which may present a problem if the fund continues to grow at its current rate, as Rob Morgan pointed out in a recent article.
Nevertheless, the FE Research team rate the fund highly. However, Amandine Thierree – who is analyst on the team – says that investors should be wary of the possible dangers associated with the fund.
“The major risk associated with the strategy is that it relies on Dean and her team to get the timing of their decisions right,” she explained.
“If they call the beginning of an economic recovery early, the fund will suffer from jumping the gun and moving into unsuitable stocks. It would not necessarily produce a bad performance in such a scenario but it would lag its peers in the UK All Companies sector.”
“The fund has the potential to offset this effect by catching the upside faster than its competitors, but nevertheless the set-up increases the uncertainty of its short-term performance,” she added.
The Cazenove UK Opportunities fund is the cheapest on the list with an OCF of 1.58 per cent. It requires a minimum investment of £1,000.
