Those investors who sold mid and small caps in the first quarter for large caps will have had some sleepless nights, but since March there has been a change in market direction, and the large caps have now decisively moved ahead of the mid and small cap areas of the market.
Performance of indices in 2014
Source: FE Analytics
Here we look at five funds which are positioned for this shift in the markets and might appeal to those worried about having taken on too much small and mid cap exposure during the boom years.
AXA Framlington UK Select Opportunities
Data from Style Research shows that the £4.8bn AXA Framlington UK Select Opportunities fund has been shifting into the large cap area of the market over the past year and trimming the small and mid cap exposure.
In fact, the fund has retained a more significant weighting to the FTSE 100 than many of its peers in recent years.
The fund now has 59.67 per cent in the FTSE 100 and 28.74 per cent in the FTSE 250. Regression analysis shows that a portfolio split 60 per cent into the FTSE 100 and 40 per cent in to the FTSE 250 would have produced 88 per cent of the returns of the index over the past three years.
Over that time the fund has beaten its benchmark and sector, according to our figures, returning 37.42 per cent.
Performance of fund versus sector and benchmark over 3yrs
Source: FE Analytics
FE Alpha Manager Nigel Thomas has acquired an excellent reputation as a stock-picker over a long career.
He has been running the fund since 2002, and our data shows he has been one of the most consistent outperformers over that time: 2012 is the only year in the past 10 that he has failed to beat his peers.
Investec UK Special Situations
Alistair Mundy has been one of the high profile managers to warn most vociferously of over-heating in the UK equity market.
One of the ways he has expressed this bearishness in his £1.4bn Investec UK Special Situations fund is through building up a significant weighting to cash – 11.2 per cent at the time of the most recent factsheet.
He has also been buying into large-cap areas of the market which he finds undervalued such as the oil and gas sector.
Shell makes up 9 per cent of the fund and BP a further 5.7 per cent. This contrarian positioning has paid off in recent months, with both shares well ahead of the index this year after being out of favour for a long time.
Performance of stocks versus index in 2014
Source: FE Analytics
Mundy also holds HSBC, Glaxo and Unilever in his top 10 holdings, as well as Tesco and BAT.
JOHCM UK Opportunities
The £1.3bn JOHCM UK Opportunities fund is run by FE Alpha Manager John Wood and Ben Leyland.
It concentrates on producing absolute returns throughout the market cycle which leads it to have a heavy weighting to large caps. It is also one of the best performing UK equity funds in the brief period since the market sell-off of March.
The fund has five FE crowns and is highly-rated by the FE Research team, who include it in their FE Select 100.
“The manager likes companies with predictable and sustainable earnings that are reinvested into the business rather than paid out to shareholders,” said analyst Amandine Thierree.
“Even though the fund looks for growth, it does not invest in smaller companies because it views them as too risky.”
Data from Style Research shows that the fund is far more heavily invested in large cap growth funds than its peers in particular, although it is overweight large caps as a whole.
The cautious outlook means that over three and five year periods it is a second quartile performer - albeit outperforming the All Share – but in the past few months has come into its own, leading the sector over three months.
Franklin UK Blue Chip
A less well-known fund that has also strongly outperformed in recent months is the £21m Franklin UK Blue Chip.
The management team was bulked up last September with the additions of FE Alpha Managers Ben Russon and Mark Hall, who joined Colin Morton.
Data from Style Research shows that the fund remains consistently overweight the large cap areas of the market, which has helped it in the current environment.
The fund is a top-quartile performer this year as it was back in 2011 and 2008 when the markets suffered and large caps outperformed.
It is now ahead of its sector over one year despite its focus on the large caps during last year’s mid cap boom.
Performance of fund versus sector and index over 1yr
Source: FE Analytics
Like Mundy's portfolio the fund is heavily invested in pharma, oil and gas and tobacco.
Threadneedle UK Extended Alpha
The £47m Threadneedle UK Extended Alpha fund, run by Chris Kinder, has made a significant move into large caps in the past few months.
As a consequence it is among the few active funds to have beaten the trackers since the beginning of March.
The fund is a high conviction portfolio of 47 stocks with 36 per cent in the top 10. It has big bets on the tobacco sector as well as significant positions in oil and gas and mining.
Like many of the funds to have done well in recent months it has been buying previously out of favour areas as the market has rotated back into them.
As a high conviction fund it has flexibility in terms of its approach, and our data shows it has also done well in the recent mid and small cap rally.
Performance of fund versus sector and index over 3yrs
Source: FE Analytics
It has made 45.4 per cent over three years, top quartile returns in a sector which has made 34.15 per cent on average.