The UK equity market has trended downwards since 3 September following concerns about the end of QE in the US, extended valuations and growing geo-political tensions.
Those losses have been compounded over the last week or so, meaning that the FTSE All Share has fallen 7.54 per cent over the period and while the FTSE 100 began to recover yesterday, it still stands at 6,390 – at the time of writing – having been at 6,800 in early September.
The IMA UK All Companies sector average has fallen slightly more than the index over the period with losses 7.68 per cent, while the average fund in the IMA UK Equity Income sector has fared slightly better with losses of 6.89 per cent.
Performance of sectors and index since 3 Sep 2014
Source: FE Analytics
There haven’t been any huge stand-out performers, though, as every fund in the two sectors has lost money since the market began to correct.
The best performing fund in the growth sector has been FE Alpha Manager Mark Barnett’s five crown-rated Invesco Perpetual Income fund, which has lost 4.55 per cent, while FE Alpha Manager Neil Woodford’s £3bn CF Woodford Equity Income fund has topped the income sector with losses of 3.85 per cent.
Clearly, it is a very short period of time and no investment decision should be made on a fund’s monthly performance, but there have been a number of highly-rated portfolios which have fallen much further than the wider market.
The large majority of bottom decile performers in the All Companies sector have been those which invest in perceivably riskier areas of the market, such as mid-cap funds run by the likes of Aberdeen, Schroders and Threadneedle.
However, Schroder UK Opportunities is another which has found itself in the bottom decile as it has lost 11.06 per cent since the market began to fall.
The now £1.5bn fund has been in the press a lot recently following the departure of FE Alpha Manager Julie Dean and its lacklustre returns relative to the sector and its benchmark over the past 12 months.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
The fund is now managed by Matt Hudson, who has been rotating into larger companies recently as part of his business cycle approach and will be keen to get the fund beating the market and back into the top quartile, like it was in each year between 2008 and 2013.
Nevertheless, Hudson has been fighting an upward battle as a recent FE Trustnet article highlighted that he has had to deal with £600m worth of outflows since Dean’s departure.
Ed Legget’s Standard Life UK Equity Unconstrained fund is also a bottom decile performer since early September with losses of 10.22 per cent.
This may not come as a surprise to many, however, as although the £1.2bn fund has been the sector’s second best performing portfolio since Legget took charge in April 2008 with returns of 142.44 per cent, those gains have tended to come in rising, not falling, markets.
Our data shows, for instance, that it was bottom quartile in the crash year of 2008 and the turbulent market of 2011.
Despite that, Legget told FE Trustnet at the start of the year that his fund would have now a different return profile than it had in the past as his focus on value had pushed him into large-cap multinationals.
The £6.3bn M&G Recovery fund, which is headed up by Tom Dobell, is another value-orientated fund which has been a bottom decile performer.
Though Dobell outperformed in each of his first 10 calendar years as manager of the fund, its performance since 2011 has left some of its investors disappointed.
Source: FE Analytics
Some have questioned whether the size of the portfolio has been the major driving force behind the lacklustre returns, but Dobell has stated on a number of occasions that it hasn’t been the case.
In a recent article, Premier’s Simon Evan-Cook said that size will have affected the portfolio and while he warns unit holders may have to wait a little longer, he fully expects the fund to outperform over the longer-term.
It’s not just value funds which have struggled, however, as highly-rated growth portfolios such as AXA Framlington UK Select Opportunities and Liontrust Special Situations have found themselves in the bottom quartile during the correction.
FE Alpha Manager Nigel Thomas’ £4.3bn AXA Framlington fund has lost 9.31 per cent over the period while the five crown-rated Liontrust fund, which is run by FE Alpha Managers Anthony Cross and Julian Fosh, has fallen 8.31 per cent.
Again, while it is only a month or so worth of data, those two funds have tended to hold up much better in the past when the market has fallen as they both beat the sector and the FTSE All Share in 2008 and 2011.
As mentioned earlier, funds within the IMA UK Equity Income sector have tended to hold up better than their All Companies rivals and the portfolios which have found themselves at the wrong end of the performance table have largely been those with a clear mid and small-cap bias.
Elite Charteris Premium Income, which has a heavy basic materials bias, has been the worst performing fund in the sector since 3 September with losses of 9.95 per cent, but it is joined in the bottom quartile by multi-cap funds such as Unicorn UK Income, PFS Chelverton UK Equity Income and Ardevora UK Income.
The exceptions to that, however, have been Martin Cholwill’s five crown-rated Royal London UK Equity Income fund and the £2.7bn JOHCM UK Equity Income fund which have lost 8.39 per cent and 8.85 per cent respectively.
While both do have exposure to the FTSE 250, their largest holdings are FTSE 100 mega-caps such as Royal Dutch Shell, HSBC and AstraZeneca in their top 10.
Both have comfortably beaten the sector and the FTSE All Share over three, five and seven-year periods, however.