However, our data shows that since the Fed’s decision to taper its quantitative easing programme in May 2013 caused a sell-off, the FTSE All Share has been flat, grinding out a return of just 3 per cent.
While bullish sentiment was rife in the second half of last year, the market in 2014 has been considerably different as investors have de-risked their portfolios, causing more defensive stocks to outperform.
Rob Gleeson, head of FE Research, told FE Trustnet last week that the current market lacks direction so he is hiding his savings in Standard Life GARS because it can add value no matter the environment.
For those investors who are willing to take on more risk, FE Trustnet highlights five UK funds that have come into their own in the recent flat market by considerably outperforming and generating high levels of alpha.
MFM Slater Growth
FE Alpha Manager Mark Slater's £104.3m MFM Slater Growth fund is the best performing portfolio in the IMA UK All Companies sector since last year’s “taper tantrum”, with returns of 32.68 per cent.
Performance of fund vs sector and index since 22 May 2013
Source: FE Analytics
The fund took full advantage of the rally at the back end of last year. However, unlike competitors such as Unicorn UK Growth, Barclays Lower Cap and City Financial Opportunities, which were all top decile over the period, MFM Slater Growth's outperformance has continued into 2014.
Although mid and small caps have struggled and the sector has lost money this year, Slater’s all cap fund has been top decile with returns of 8 per cent.
One of Slater’s best performing stocks is FTSE AIM-listed manufacturer Trifast, which has returned 60 per cent year to date.
MFM Slater Growth has also considerably outperformed over the long term, delivering top quartile returns in five out of the last eight calendar years since its launch in March 2005.
Its ongoing charges figure (OCF) is 0.81 per cent.
CF Miton UK Value Opportunities
George Godber and Georgina Hamilton’s £63m CF Miton UK Value Opportunities fund is another member of the IMA UK All Companies sector that has managed to consistently outperform over the past 14 months.
According to FE Analytics, the fund is the fifth best-performing portfolio since 22 May 2013, with returns of 22.57 per cent, and is also top decile so far in 2014 with returns of 5.4 per cent.
Stockpicking has been the major driver of those returns, with the fund the sector’s sixth best performer for alpha generation relative to its benchmark since last year’s sell-off.
It has the second best Sharpe ratio and the best information ratio over this time as well. Both of these measure risk adjusted returns.
The fund is made up of 65 holdings. Godber and Hamilton hold 36 per cent of their portfolio in FTSE AIM stocks, 34 per cent in the FTSE 250, 11 per cent in the FTSE Small Cap index and just 10 per cent in the FTSE 100. They also hold more than 5 per cent of the fund in cash.
Its OCF is 1.12 per cent.
Neptune UK Mid Cap
The FTSE 250 was the leading index in 2013, but after strong gains gave way to macroeconomic headwinds, it has corrected significantly over recent months.
However, FE Alpha Manager Mark Martin’s five crown-rated Neptune UK Mid Cap fund has continued to perform well regardless.
Our data shows that it is a top-decile performer since the correction in May last year with returns of 16.21 per cent, doubling the returns of its FTSE 250 benchmark.
While the fund beat its benchmark in the second part of 2013, the majority of its outperformance has come in 2014. It has returned 4.93 per cent this year while the index has lost 1.93 per cent.
Performance of fund vs sector and index in 2014
Source: FE Analytics
Like the CF Miton UK Value Opportunities fund, Neptune UK Mid Cap is top decile for its alpha generation, relative to its benchmark, and its sharpe ratio since May last year.
The fund is a top decile performer since launch in December 2008 and has considerably outperformed its benchmark, with returns of 248.52 per cent.
Henderson UK Equity Income & Growth
Another IMA UK All Companies fund worth mentioning is FE Alpha Manager James Henderson's £560m Henderson UK Equity Income & Growth portfolio, which switched across from the IMA UK Equity Income sector last year.
Henderson says he took the decision to move the five crown-rated fund as he was concerned that he would be forced into a “value-trap” if he were to stay in the dividend-paying sector. The flexibility this has given him seems to have helped the performance of the portfolio.
Our data shows it is a top quartile performer since May 2013 with returns of 15 per cent. Over this time it is also top quartile for its alpha generation relative to its benchmark, as well as its information ratio and sharpe ratio.
The fund is up against the IMA UK All Companies and IMA UK Equity Income sectors in 2014 with returns of 1.19 per cent, but is very marginally down against the FTSE All Share.
Henderson told FE Trustnet in May that he had trimmed his exposure to mid caps due to expensive valuations and has instead bought FTSE 100 names such as HSBC, Rio Tinto and BP.
The fund yields 2.9 per cent and its OCF is 0.86 per cent.
AXA Framlington Monthly Income
George Luckraft’s five crown-rated AXA Framlington Monthly Income fund has been one of the best performing and most consistent portfolios in the IMA UK Equity Income sector since May last year.
It is the third best performing fund over this time, with returns of 21.52 per cent.
Unlike the majority of top quartile funds over this period, such as Marlborough Multi Cap Income, PFS Chelverton UK Equity Income and Unicorn UK Income, Luckraft’s £121m fund has a high weighting to FTSE 100 stocks.
The AXA Framlington Monthly Income fund managed to deliver top quartile returns of 14.73 per cent between May 2013 and the end of December 2013.
Its FTSE All Share benchmark returned just 1.97 per cent over this time.
Performance of fund vs sector and index between May and Dec 2013
Source: FE Analytics
The fund is also the best performing portfolio in 2014, with returns 6.08 per cent. This means AXA Framlington Monthly Income has generated the second-highest amount of alpha relative to its benchmark during this flat market.
The fund has a yield of 3.6 per cent and an OCF of 0.86 per cent.
