Today we look back at an article written this time last year when FE Trustnet highlighted some of the most popular funds with investors which, at that stage, had found themselves in the bottom quartile in what was a very strongly rising market.
At the time, experts said investors would be wrong to sell as they are the type of funds which would come back into their own if market conditions began to change – and 2014 has certainly been a more turbulent year than 2013.
Some of our readers seemed to disagree with the experts’ recommendations, though, with one even suggesting that it seemed like a “check-list of funds to be wary of”.
However, using the benefit of hindsight, we look back to see how each of those five funds has performed since the article was published to see whether investors would have benefitted from holding their nerve.
Liontrust Special Situations
FE Alpha Managers Julian Fosh and Anthony Cross have a growth-orientated strategy on their five crown-rated Liontrust Special Situations fund, focusing on companies which have an “economic advantage”.
While it was a bit of a stretch to say the now £1.3bn fund was struggling last year as it was roughly in line with the FTSE All Share, the managers’ focus on quality meant it was lagging relative to the IMA UK All Companies sector last year as it was a bottom quartile performer in 2013 at the time of writing.
Though it has by no means shot the lights out, that same strategy has meant Liontrust Special Sits has coped far better since the article was published as it has outperformed both the sector and the index over the last year with returns of 3.71 per cent.
Performance of fund versus sector and index over 1yr
Source: FE Analytics
This has complemented its longer-term numbers as since its launch in November 2005 it has been the fifth best performing fund in the sector with returns of 196.32 per cent, beating the All Share by 117 percentage points.
It is effectively a FTSE 350 portfolio, though the managers currently count large-cap multinationals such as BP, Unilever and Diageo as top 10 holdings. Its ongoing charges figure (OCF) is 0.88 per cent.
Jupiter European
Next on the list was FE Alpha Manager Alexander Darwall’s £2.4bn Jupiter European fund, which also has a high weighting to quality companies that have strong balance sheets and reliable earnings.
This approach pushed the fund into the third quartile in 2013 and meant it had slightly underperformed against its FTSE World Europe ex UK benchmark – though it still gained 24.71 per cent last year.
However, as investors will be all too aware, 2014 has been a much more difficult year for European equities as growth has continued to slow and the threat of deflation has grown, forcing the ECB to consider unprecedented monetary intervention. Darwall’s more defensive portfolio has flourished in those conditions. Since the article was published, it has been the fifth best performer in the 102-strong IMA Europe ex UK sector with returns of 4.88 per cent.
Its benchmark has returned 0.95 per cent over that time, while the sector average is down 1 per cent.
Like the Liontrust fund, the five crown-rated Jupiter fund has a strong long-term track record, turning in top decile returns over five, seven and 10-year periods.
Its OCF is 1.03 per cent.
Troy Trojan
Sebastian Lyon’s £2.4bn Trojan fund had fallen massively out of favour with investors and you can certainly understand why.
The manager’s extremely bearish positioning, which included a high weighting to gold, cash and index-linked bonds, meant it returned just 2.11 per cent in the up market of 2012 and even lost money in 2013 when equities were up 20.81 per cent.
The experts who said investors shouldn’t sell Trojan pointed to its ability to protect on the downside when higher risk assets struggled – and, almost predictably, that has happened again so far this year.
According to FE Analytics, it is up 8.27 per cent year to date while its FTSE All Share benchmark has returned just 1.63 per cent.
Performance of fund versus index in 2014
Source: FE Analytics
Lyon (pictured) has form for this sort of performance. In 2011 when the index lost 3.46 per cent, the fund returned 8.52 per cent and in 2008 when UK equities fell 30 per cent, Trojan eked out a 1 per cent gain.
The manager is holding onto his defensive assets as he has 14 per cent in cash and a further 14 per cent in cash. Its OCF is 1.03 per cent. Jupiter Merlin Income
The Jupiter Merlin funds, run by John Chatfeild-Roberts, Algy Smith-Maxwell and Peter Lawery (all of whom are FE Alpha Managers), are commonly regarded as some of the best multi-manager portfolios in the IMA universe.
That being said, owing to high weightings to emerging markets and gold their £4.5bn Jupiter Merlin Income fund, which has outperformed over the longer term, struggled last year relative to the IMA Mixed Investment 20%-60% sector with returns of 7.82 per cent.
However, unlike Liontrust Special Sits, Jupiter European and Trojan, Jupiter Merlin Income hasn’t come roaring back as it been a bottom quartile performer since last year’s article.
In a recent FE Trustnet article, Chatfeild-Roberts explained that the fund had continued to struggle due to an underweight position in western government bonds and the managers’ belief that the US dollar would strengthen.
Both those calls have paid off more recently and the fund has started to turn a corner, though that has only been over recent months.
Though you wouldn’t necessarily bet against the team repeating their strong long-term returns in the future, given that there seems to be a growing disillusionment among some of our regular commenters about the Merlin range, we will be looking at some of the other options in the fund of funds space.
Jupiter Merlin Income has a yield of 2.9 per cent and an OCF of 1.6 per cent.
M&G Recovery
Tom Dobell’s M&G Recovery is another fund which has continued to struggle since last year’s article.
Though the fund outperformed both the IMA UK All Companies sector and the FTSE All Share in the first 10 calendar years that Dobell was in charge, it has slumped over recent years.
The fund was third quartile in 2011, bottom decile in 2012 and 2013 and is bottom decile once again in 2014 with losses of 8.12 per cent. That means that over three years, M&G Recovery has returned just 16.55 per cent compared to the index and sector’s respective gains of 39 per cent and 44.06 per cent.
Performance of fund versus sector and index over 3yrs
Source: FE Analytics
Many have, rightly or wrongly, pointed to the growing size of the £5.6bn fund – which peaked at more than £8bn in 2012 – as the driver of that underperformance, though Dobell has attempted to quash those rumours and instead blamed stock-specific issues.
Nevertheless, given that there is still a lot of money in the fund, we will write a more in-depth article about the fund tomorrow morning where we ask the experts whether investors are fully within their rights to have lost patience with this giant fund, or whether a turnaround is on the cards.
Its OCF is 0.9 per cent.
