No-one buys funds hoping they will languish in the fourth quartile. You buy them hoping they will achieve the impossible and sit in their peer group’s first-quartile over every time frame, no matter when you look at them.
Of course, this rarely happens. But in the first of a new series, FE Trustnet has examined the IMA UK All Companies sector for the funds that have stayed in the top quartile over successive rolling five-year periods back to 2004.
While it would be nice to have managers who stay in the first quartile year in, year out, they may see performance dip over set period for valid reasons - such as buying into unloved areas - then come back strongly in the following years as this pays off.
Examining funds over rolling periods smooths out the returns of individual years and allows a better understanding of the outcome of an investor with a more long-term view.
FE Trustnet has looked over the six rolling five-year periods between 31 October 2004 and 31 October 2014 to determine which UK funds have managed to hold onto a place in the first quartile. Only funds with a 10-year track record were included in the study.
Our analysis shows that 11 funds from the IMA UK All Companies sector are ranked first quartile over all of the six rolling five-year periods examined. This means just 4.5 per cent of the funds in the sector have been able to achieve this feat.
FE Alpha Manager Paul Spencer’s £939.8m Franklin UK Mid Cap fund tops the list. The fund was the sector’s best performer between 31 October 2004 and 31 October 2009 and has not dropped out of the top 10 in the five rolling periods since.
Since Spencer took over the fund in February 2006, it has returned 196.18 per cent and beaten the average fund in the sector and its FTSE 250 benchmark by a substantial margin in the progress. Over this time it’s also the third best fund in the sector, out of the 200 with a long enough track record.
Performance of fund vs sector and index over manager tenure
Source: FE Analytics
It has done this with less volatility and a lower maximum drawdown - which shows the loss an investor would have seen if they bought and sold at the worst possible time - than the mid-cap index.
Investment research consultancy Square Mile said: “This is a solid proposition for investors looking for a pure FTSE 250 play run by an experienced and pragmatic investor, while the fund's emphasis on capital protection should mean a less bumpy ride during volatile market conditions.”
Two other mid-cap specialists can be found on the list of 11 funds - Richard Watts’ £1.4bn Old Mutual UK Mid Cap and James Thorne and Matt Evans’s £101.6m Threadneedle UK Mid 250 funds.
Old Mutual UK Mid Cap is also the second best performing portfolio on the list on a cumulative basis over the past 10 years with a 285.71 per cent return. Watts has managed it since February 2008, over which time it has been the sixteenth best performer in the sector after gaining 214.62 per cent.
However, Thorne and Evans have only managed Threadneedle UK Mid 250 since 2013, as Simon Haines was on the portfolio from 2005. Since they have both been on the fund, it has outperformed the FTSE 250 and is in the second quartile.
Franklin UK Mid Cap has a clean ongoing charges figure (OCF) of 0.82 per cent. The Old Mutual fund charges 0.92 per cent while Threadneedle UK Mid 250 has a 1.06 per cent OCF.
Portfolios with higher weightings to larger companies are also well represented in the list of rolling five-year outperformers, including funds managed by Majedie and AXA.
The five FE Crown-rated £481m Majedie UK Focus fund has returned 245.88 per cent over the past 10 years, which as the graph below illustrates is more than double the gain of the FTSE All Share and the average IMA UK All Companies fund.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It was the second best performing fund in the sector during the first rolling five-year period but has gradually moved down the absolute rankings over each successive period and is in fiftieth place over the most recent one.
It has been managed by Chris Field and James de Uphaugh since launch in September 2003. They were joined by Matthew Smith in 2010 and by FE Alpha Manager Chris Reid in 2012.
AXA Framlington UK Select Opportunities, headed by FE Alpha Manager Nigel Thomas, has been highlighted by FE Trustnet for its continued outperformance on several occasions. A recent study showed the £4.4bn fund was the most consistent outperformer over 10 years, beating its peers in nine of the past 10 years.
The fund is highly regarded, appearing on the FE Research team’s Select 100 list of preferred funds and holding a top ‘AAA’ rating from Square Mile.
According to the FE Research team: “Thomas is one of the most experienced and talented managers currently operating in the UK, and is highly skilled at spotting both new economic trends and the relevant companies that can benefit the most from these over the long term.”
“The fund’s excellent performance record has made it one of the most popular in its sector, and has been untarnished by its recent growth in size of assets under management.”
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Majedie UK Focus has clean ongoing charges of 1.53 per cent and AXA Framlington UK Select Opportunities has a 0.83 per cent clean OCF.
The full list of the 11 UK All Companies funds that are first quartile over all six rolling five-year periods can be seen below. However, it must be noted that past performance is no guarantee of future returns and that some of the funds could have seen their performance slip for various reasons over the nearer term.
A good example of this is Schroder UK Opportunities, which has an impressive long-term record built up under former manager Julie Dean.
However, the fund’s performance has dipped this year while concerns mounted over its growing size, then Dean departed in September and incoming manager Matt Hudson has had to contend with outflows. Over 2014, it is one of the weakest funds in the sector.
Source: FE Analytics
In the next article of the series, FE Trustnet will look at the equity income funds achieving the strong rolling returns over the last 10 years.
