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The equity funds that have made you money year-in, year-out

26 November 2014

It’s hard enough for multi-asset managers to consistently make money, but some pure equity managers have made a positive return in eight or more of the last 10 calendar years.

By Joshua Ausden,

Editor, FE Trustnet

Equities are typically viewed as high-risk investments, capable of losing vast quantities over the short-term, but vast gains over the long-term.

 

The last 15 years or so has illustrated the risks, with severe market crashes in the early 2000s and in 2008 seeing the FTSE 100 fall by up to 40 per cent in a matter of months. 2007 and 2011 were also difficult years, though to a lesser extent.

 

Performance of index over 10yrs

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Source: FE Analytics

 

There are some long-only managers who have a proven ability of protecting against the downside, whilst taking part in rising markets as well.

 

There are a few ways they can do this. Some have a natural bias towards defensive, often dividend-paying companies that tend to weather sell-offs much better than those that are economically sensitive. Others tactically use cash to help hedge against downside risk, using their liquidity to cash in on cheap opportunities after the markets have fallen.

 

While even the most cautious equity manager can’t guarantee to make a positive return every year, here we identify some of those that have made money in at least eight of the last 10 calendar years.

 

According to FE data, 33 pure equity funds have managed to make money in an impressive nine of the last 10 calendar years.

 

In some cases, this is down to their underlying asset class performing exceptionally well. An obvious example is US equities, as the S&P 500 has risen in nine years of the past decade. Global healthcare has been another area where stocks have tended to fare well.

 

In other areas, consistent gains and outperformance have been harder to achieve. FE Trustnet recently highlighted the IMA Global sector as a space where active managers find it difficult to add value.

 

Veritas Global Focus is a notable exception, however, having made a positive return in nine of the past 10 calendar years. Its only losses came in 2008 when the fund lost 7.10 per cent, against a fall of 17.92 per cent in the MSCI World and an average drop of 24.32 per cent by its peers.

 

Performance of fund vs sector and index over 10yrs

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Source: FE Analytics

 

Headed up by FE Alpha Managers Andy Headley and Charles Richardson, the fund is one of the least volatile in its sector thanks its managers’ cautious approach and willingness to build cash levels when markets look expensive then use it when shares fall.

 

Investment research firm Square Mile said: “This is a global equity fund with a difference – Veritas focus their efforts on providing clients with decent returns; they have no immediate concern about matching the returns of the wider market or about replicating exposures found in the benchmark.”

 


 

Other equity funds that similarly focus on defensive companies and downside protection have a track record of consistent positive returns over the long term.

 

Some of the most notable examples here are Invesco Perpetual High Income, which was managed by Neil Woodford over most of its track record and is now helmed by Mark Barnett; Barnett’s Invesco Perpetual UK Strategic Income fund; and Anthony Cross and Julian Fosh’s Liontrust UK Growth.

 

All four managers listed above hold FE Alpha Manager status, tend to hold up well in down markets and their funds have made money in nine years from the past decade – the exception for all being the bear market of 2008.

 

Invesco Perpetual High Income has made a positive return in 17 of the past 20 years. Woodford now manages the CF Woodford Equity Income fund with the same investment approach that made his name at Invesco Perpetual.

 

Performance of fund vs sector and index over 20yrs

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Source: FE Analytics

 

Ben Willis, head of research at Whitechurch Securities, notes that a focus on dividends appears to be helpful when seeking year in, year out returns. FE Analytics shows 12 funds in the IMA UK Equity Income sector have money in at least eight of the past 10 years.

 

“These funds can’t certainly be seen as absolute return funds, but the holdings they target do tend to have these kinds of features,” he said.

 

“They have a decent yield and the companies they look at are pretty secure. On top of that you’ve got the potential for capital growth, but they’re not going all guns blazing.”

 

“This is the kind of style that has been in high demand, which has helped them further. They are a good core position for a portfolio. They still participate on the upside, but you know you can bank on a dividend and they protect their capital much better than most.”

 

Some of the well-known funds in the sector that have made money in eight calendar years include Artemis Income, Fidelity Moneybuilder Dividend, Newton Higher Income, Royal London UK Equity Income and Schroder Income.

 

Despite being perceived as higher risk, some UK smaller companies funds have built a strong track record for consistent returns – with Artemis UK Smaller Companies and Liontrust UK Smaller Companies being the strongest.

 

Mark Niznik’s £358m Artemis UK Smaller Companies fund only lost money in 2008, although subsequently it dropped more than 50 per cent while its Numis Smaller Companies ex Investment Trusts benchmark fell by just over 40 per cent.

 

While it has consistent made money, the fund has lagged its peers in recent years thanks to its exposure to micro-caps and unquoted stocks. Niznik reduced some of these positions in 2013 and the fund has moved up the ranking since, although it is still down over 2014 so far.

 


 

Liontrust UK Smaller Companies, which holds five FE Crowns and is headed by the FE Alpha Manager duo of Cross and Fosh, only lost money in 2007 and 2008, in both years losing significantly less than the FTSE Small Cap index.

 

The £295.7m fund is currently first quartile over one, three and five years. It is also found on the FE Research Select 100 of preferred funds, where it is highlighted for its consistent returns, relatively levels of risk and the managers’ stock-picking skills.

 

Performance of funds vs sector since April '98

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Source: FE Analytics

 

Another source of surprisingly consistent return comes from the IMA Technology & Telecoms sector, which can be more volatile than the mainstream equity sectors.

 

Aditya Shivram’s €145m Fidelity Global Telecommunications fund has made money in every calendar year of the past decade, aside from its 15.28 per cent fall in 2008. It underperformed its index here but did better than the average fund in the sector.

 

On a cumulative basis, however, the fund lags the sector average over one, three and five-year periods. It has returned 61.16 per cent over five years, while its average peer has gained 92.87 per cent.

 

This could be done to the fact it invests in telecoms, while other members of the sector focus on the racier technology space.

 

In a study last week, FE Trustnet identified some of the bond funds that have consistently made a positive return. 

 

The final study of the series will examine the investment trust sectors featuring more consistent performers.

 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.