The latest figures from the Investment Management Association show that the UK All Companies sector benefitted from net inflows of £168m in October, following five straight months of money being pulled out of the peer group.
In September investors redeemed a collective £852m from the funds, following outflows of £258m and £230m in the previous two months.
The sector was the worst selling group in the IMA universe for four consecutive months until the outflow streak was broken in October.
Various reasons could be cited as to why investors moved away from the sector over recent months. At the macro level, some are concerned that the economic recovery remains unbalanced despite continued growth; at a market level, some view the valuations of UK equities as stretched; and at a fund level, some of the sector’s bigger names, such as Invesco Perpetual High Income and Schroder UK Opportunities, suffered redemptions.
In the following article, we look at four funds that the FE’s panel of leading investment advisers have put in the AFI Aggressive, Balanced and Cautious portfolios, suggesting they could be attractive to investors across the risk spectrum.
AXA Framlington UK Select Opportunities
The £4.3bn fund, managed by FE Alpha Manager Nigel Thomas, is a firm favourite with investors and intermediaries.
Indeed, FE Analytics shows the fund was one of the best-selling UK All Companies members in October with net inflows of £79.8m.
AXA Framlington UK Select Opportunities has built up a strong long-term record of outperformance. A recent FE Trustnet study found the £4.4bn fund was the most consistent outperformer over 10 years, beating its peers in nine of the past 10 years.
Over 10 years, the fund has returned 163.34 per cent and outpaced by the average fund in its peer group and the FTSE All Share in the process.
It is first quartile over five and 10-year periods but has fallen into the third quartile over one and three years.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It appears on the FE Research team’s Select 100 list of preferred funds, where Thomas is described as “one of the most experienced and talented managers” in the industry with a proven ability to identify companies that can benefit from new economic trends.
The fund also holds a top ‘AAA’ rating from investment research consultancy Square Mile, which notes that Thomas has beaten the benchmark return by an average of almost 6 per cent per annum.
The consultancy says it has “reservations” about whether the fund can continue this degree of outperformance given its size. But it adds that it remains one of the strongest IMA All Companies funds regardless.
AXA Framlington UK Select Opportunities has a clean ongoing charges figure of 0.83 per cent.
CF Lindsell Train UK Equity
Nick Train’s £1.1bn fund is another that has established a strong reputation thanks to the long experience of its manager.
It’s first decile over one, three and five years, as well as over 2014 to date, and has made first quartile returns in every calendar year from 2008 onwards.
FE Alpha Manager Train is a long-term investor who focuses his concentrated portfolio on cash-generative business franchises.
Among his largest holdings are Unilever, Diageo, Reed Elsevier, London Stock Exchange and Heineken Holdings, covering three themes of consumer branded goods, owners or developers of unique intellectual property and stock market proxies.
Performance of fund vs sector and index since launch
Source: FE Analytics
In his most recent update, Train (pictured) argued that “nothing is performing consistently, or quite as it ostensibly ought” in the UK stock market.
He said: “I continue to find UK equity market performance rather random, without clear trends for our key themes and stocks.”
“We continue to analyse the underlying economic drivers for our themes as positive – global consumer brands are increasing in reach and value, technology is enhancing the value of unique IP and the savings market in the UK is growing. If this continues we must assume prices will eventually start to make sense again.”
The five crown-rated fund also has a place on the FE Research Select 100 and is rated at ‘AAA’ by Square Mile, which says the results of its long-term horizon, low portfolio turnover and differentiated approach means “there is much to be impressed about”.
CF Lindsell Train UK Equity has a clean OCF of 0.77 per cent.
JOHCM UK Opportunities
The £1.4bn JOHCM UK Opportunities fund is managed by FE Alpha Manager John Wood and holds five FE Crowns. It also appears on the FE Research Select 100.
The fund is another that is run to a long-term investment approach with Wood building a 30 to 40 stock portfolio through a combination of a top-down thematic overlay and bottom-up stock selection.
The manager prefers companies with predictable and sustainable earnings that are reinvested into the business rather than paid out to shareholders.
JOHCM UK Opportunities is first quartile over 2014 to date but has moved around in the sector rankings in recent calendar years. It was third quartile in 2013, fourth in 2012, first in 2011 and fourth in 2010. It sits in the first quartile since launch and in the second over five years.
Performance of fund against sector and index since launch
Source: FE Analytics
According to the FE Research team, the fund could be a good core option for investors with an investment horizon of at least five years, so long as they are able to tolerate short-term losses to achieve long-term gains.
“The fund is managed in an absolute return manner, which means producing an overall positive return is more important than matching the performance of the UK stock market,” the team added.
“Wood says he doesn’t care about falling behind an index over a number of quarters, because what matters most to him is that his investors make money over the long term.”
JOHCM UK Opportunities has clean ongoing charges of 0.82 per cent.
Standard Life Investments UK Equity Unconstrained
Ed Legget (pictured) has managed this £1.1bn fund since April 2008, over which time it has returned top-decile returns of 164.19 per cent.
This is more three times the return of the FTSE All Share and the average fund in the IMA UK All Companies sector, making it the second best performing fund in the peer group over this time.
The fund, which has an unconstrained, concentrated and all-cap approach that pays little attention to how UK stock market indices look, is in the first quartile over three and five years but has dropped into the sector’s bottom quartile over one year.
FE Trustnet recently examined Standard Life Investments UK Equity Unconstrained as part of our ‘Buy, hold or fold’ series, where fund pickers such as The Share Centre's Andy Parsons said short-term underperformance shouldn't necessarily out investors off the fund as it shows Legget is willing to back his convictions.
Performance of fund against sector and index over manager tenure
Source: FE Analytics
Square Mile has given the fund an ‘A’ rating. It added: “For investors looking for a truly actively managed UK equity fund which pays little regard to the underlying reference index then this strategy is worth consideration.”
“However, for the same reason the process may be vulnerable, especially in selloffs, if the research output is directing Mr Leggett into parts of the market that can quickly fall out of favour, such as smaller companies or cyclical businesses.”
Standard Life Investments UK Equity Unconstrained has a 1.15 per cent OCF.
