The return of the average IMA UK All Companies fund has fallen from 26.21 per cent in 2013 and 15.05 per cent in 2012 to a loss of 0.16 per cent over the year so far.
However, volatility has been picking up with geo-political tensions, the possibility of Scottish independence and the realisation that a rising interest rate environment is coming all being absorbed into market decisions.
Here, we take a look at Square Mile’s lesser-known but top performing fund-picks that have demonstrated outperformance in a variety of market conditions to grow capital.
Dodge & Cox US Stock
The US equity market is notoriously hard to consistently beat, especially of late as the sharp falls in the wake of the financial crisis bottomed out and the index bounced back aplomb.
As the S&P 500 has vastly outperformed all other developed indices over one, three and five years it has been a popular market to be exposed to but many investors and managers as well as members of our AFI panel have simply bought the index.
This $187m Dodge & Cox US Stock fund was launched in December 2010 over which time it has outperformed the S&P 500 and the IMA North America sector average.
It has returned 73 per cent since launch compared to a sector average of 58.38 per cent and a gain in the index of 65.59 per cent.
Performance of fund vs sector and index since Dec 2010
Source: FE Analytics
Square Mile says the fund is one of the few to beat the index since its launch near the bottom of the market.
“Dodge & Cox is a highly regarded organisation in the US, though it is less well known in Europe and the UK. We believe that the firm deserves greater recognition by UK investors, as they represent one of the few organisations that has added significant value through active management in the US, traditionally a fiercely competitive market place for active managers.”
It was top decile in 2012 and 2013 and is top quartile in 2014 so far. Its consistently high returns make it the second best performer over three years.
“Although this particular fund has only a relatively short track record, Dodge & Cox have a history of investing in US equities spanning many decades. The company's investment ethos has remained consistent throughout the period, focusing on in-house fundamental stock analysis with a strict valuation discipline and long-term time horizons.”
“When considering stocks, the managers are quite willing to look through short-term issues and focus their concerns on the long-term value of the business franchise. This differentiates Dodge & Cox from their competitors and has been one of the keys to their success.”
Since launch, it is the sixth best performer of 99 funds in the sector but has proven more volatile than its benchmark and is bottom quartile for max drawdown.
“There will be periods when this strategy lags the benchmark and its peers, but over most long-term time periods the fund has added value,” Square Mile added.
“The steady and collegiate management structure means that the skills of no one manager predominate and staff departures are notable by their absence. This heightens the fund's attractiveness for investors seeking exposure to one of the world's largest equity markets.”
The fund has an ongoing charges figure [OCF] of 0.7 per cent.
MFS Meridian UK Equity
Square Mile says this £284m portfolio is a core UK fund and is run by a well-regarded investment management firm.
Launched in 2006, it has a track record that encompasses a full market cycle and has been managed by Chris Jennings since July 2007.
It has returned 36.33 per cent since Jennings took over - on the eve of the financial crisis - narrowly beating the IMA UK All Companies sector average return of 35.22 per cent and a gain in the FTSE All Share of 35.75 per cent.
Performance of fund vs sector and index since July 2007
Source: FE Analytics
A bias to defensive stocks such as current top holdings HSBC, BAT and Shell means it has underperformed in recent years as markets gained strength but has proven an ability to stand up in 2008 when markets were weak.
It lost 26.32 per cent in that year while the average fund in the sector lost 31.96 per cent.
“The quality of the analysis is very high and the analyst team are well incentivised to deliver outperformance. The fund has performed consistently well since Chris Jennings took control in 2007.”
“The quality bias in the portfolio may leave the fund trailing in strong bull markets, though this factor should allow the fund to hold up better during weaker periods.”
The fund scores top quartile for max drawdown and volatility since Jennings took the helm. The fund has an OCF of 1.98 per cent.
Premier Multi Asset Income and Growth
At just £146m this fund has beaten many rivals from bigger groups such as Henderson, Ruffer and Invesco Perpetual since the current management took over in April 2010.
David Hambidge, Ian Rees and Simon Evan-Cook were also joined by David Thornton in January 2013.
Since April 2010 the fund, which has a fund of funds approach, has returned 43.19 per cent compared to the IMA Mixed Investment 40-85% Shares sector average of 29.88 per cent.
Performance of fund and sector since July 2010
Source: FE Analytics
Square Mile says the managers take a contrarian approach and prefer to take exposure to out-of-favour assets on lowly valuations.
“We have a high regard for this experienced team. The team are familiar with the outcomes that private investors seek and this broadly constructed portfolio has historically generated a performance that has met the objectives set for the fund.”
Its largest holdings include Alastair Mundy’s Investec UK Special Situations fund, the Threadneedle UK Property Trust and Stephen Harker, Neil Edwards and Jeff Atherton’s GLG Japan CoreAlpha fund.
The fund has an OCF of 1.72 per cent.
