There were other strong-sellers on the list as well, including FE Alpha Manager Chris Reid’s now £505m Majedie UK Income fund.
While it is very popular with multi-managers including Jupiter Merlin’s John Chatfeild-Roberts, Henderson’s James De Bunsen and Schroders’ Marcus Brookes, who all hold it in their top-10, the fund is relatively unknown to retail investors and advisors partly due to its lack of advertising and sub-three year track record.
Nonetheless, the wave of fund of funds money has seen it grow rapidly in recent months, and has more than doubled in size in 2014.
FE Alpha Manager Chris Reid, who has been at the helm since the fund was launched in December 2012, says he looks for value stocks that have already started to improve after a market de-rating.
Reid prioritises dividend growth above all else, which he says drives performance from not only an income point of view but a capital growth point of view as well.
He avoids those that have been “propped up by quantitative easing,” which he thinks could be set for a tough time when liquidity in the US is wound up in October.
The manager does point out that the sell-off will provide a fertile opportunity for the kinds of companies he looks for, though.
“I’m very excited for the post QE opportunities out there. It’s a market for having some good core holdings and doing the research on sectors where there is plenty of change going on such as in financial services,” he said.
“Now is the time for looking for companies that are improving their businesses.”
Since the fund was launched in December 2011 it has returned 72.34 per cent – the sixth best return in the in the IMA UK Equity Income sector over the period.
By comparison the sector average is up 48.63 per cent while the FTSE All Share has gained 43.63 per cent.
Performance of fund, sector and index since Dec 2011
Source: FE Analytics
The fund has also been extremely consistent. It has been top quartile in each full calendar year since launch and is currently top quartile for 2014.
The fund is ahead of popular choices in the sector such as the £6.7bn Artemis Income and £1.5bn Schroder Income funds, and also its multi-cap income rivals.
Unlike many so-called multi-cap income funds such as those run by Unicorn, Chelverton, Marlborough and Miton, Majedie doesn’t have an automatic bias towards small caps.
Its top-10 includes large caps such as Man Group, BAE and Friends Life, as well as some smaller stocks in the small and mid-cap indices.
It is ahead of direct rivals such as the £2.7bn JOHCM UK Equity Income and £1.4bn Royal London UK Equity Income funds since launch, though at 77.56 per cent, Standard Life UK Equity Income Unconstrained is marginally ahead.
Reid is currently most exposed to oil & gas, retail and financials stocks, which he says is where most of the value in the market currently lays.
James De Bunsen, manager of the Henderson multi-manager range says he holds the fund due to its ability to perform in a range of market conditions.
“We hold Majedie in most of our income generating portfolios. It sits alongside some of the more established names,” he said.
“It is an all-weather fund and should continue to perform in a variety of market backdrops because ultimately if you buy something when it’s cheap you are likely to outperform over the long term.”
“We tend to buy and hold funds and this fits the bill. The manager has a bit more flexibility than say the Artemis fund which is very large, and so is constrained in buying smaller and mid cap companies.”
Small and mid caps have underperformed relative to large companies this year, with the FTSE 250 losing 0.44 per cent compared a gain of 2.44 per cent in the FTSE 100.
Performance of indices in 2014
Source: FE Analytics
De Bunsen says he has been reducing mid and small cap exposure across his funds in 2014, but hasn’t sold any of his holding in the Majedie UK Income fund.
“The way Chris Reid invests, we knew he wouldn’t be exposed to the more crowded mid cap names as it is not a momentum style fund,” he said.
“It is more of a genuine multi-cap fund and the manager makes full use of exposure to non-UK equities.”
Reid currently has 9.3 per cent in European equities and 7.3 per cent in North American equities.
“Despite having 35 per cent in mid and small-caps, which are having a bit of a shocker, he is top quartile year to date. We knew that the fund would still perform if there was some rotation out of small and mid-caps.”
De Bunsen adds that the fund should protect investors in a higher interest rate environment.
“There is a danger that some stocks look less attractive as interest rates rise and bond yields rise and so this sort of fund is very attractive in that environment,” he said.
“He has little exposure to bond- proxy stocks.”
Robin McDonald, co-head of Schroders’ multi-manager range also believes the fund should continue to outperform.
“Funds always tend to be categorised nowadays with labels such as growth, value, quality and Recovery, but we think the perfect way to describe Majedie UK Income is as an ‘improvement’ fund,” he said.
“Philosophy aside, from our perspective, it is the depth and granular detail of analysis that underpins the appeal of this fund.”
“However, when you set about running a fund in a fairly distinctive way compared to your direct competitors – as Reid has – you take on board the risk/opportunity of potentially generating outsized relative returns.”
Majedie UK Income is available on most major platforms, and has clean ongoing charges of 0.78 per cent.
