In 2013 the FTSE All Share surged 20.81 per cent on the back of growing investor sentiment and steadily improving economic data, leading to the average fund in the IA UK All Companies sector returning 26.21 per cent.
Last year, however, the index only rose 1.18 per cent while the average UK growth fund made just 0.64 per cent. Investors were battered by a multitude issues, including geo-political tension in the Middle East and eastern Europe, a strengthening dollar, weakness in the eurozone and the plunging oil price.
Given the two years were so different, some of our readers asked the FE Trustnet team to run the numbers on which funds were able to outperform in both the bull year of 2013 and the more challenging 2014, with a reference to how they have performed over the longer term.
In the first article of a new series, we’ve focused on the IA UK All Companies sector, as it is the largest peer group in Investment Association universe and will be represented in most investors’ portfolios. We’ll cover the other major sectors in coming articles.
FE Analytics shows that 88 out of the 273 funds in the IA UK All Companies sector – or just under one-third of the peer group – have not only beaten the FTSE All Share on a two-year cumulative view but in each of the two calendar years as well. The table below shows the top 10 performers on a cumulative basis.
Source: FE Analytics
Seven of the above funds have an FE Alpha Manager at the helm. Invesco Perpetual UK Strategic Income appears on the FE Research Select 100 while Schroder Recovery, Old Mutual UK Mid Cap and F&C UK Mid Cap are rated ‘A’ by Square Mile.
As the table shows MFM Slater Growth, headed by FE Alpha Manager Mark Slater, has made the most on a two-year view with a 55.63 per cent gain. In 2013 it made a third-decile 32.38 per cent followed by a first-decile 17.57 per cent last year.
Over five years, the fund is in the sector’s top decile with a 204.65 per cent gain, against a return of just 51.76 in the All Share and an average rise of 59.67 per cent in the peer group. It’s second decile over three years with a 71.95 per cent return; over the same time frame the index made 37.27 per cent and the sector 46.14 per cent.
The manager’s MFM Slater Recovery fund also beat the All Share in both years, although it was in the sixth decile in 2013 and sits in the fifth decile over three years and third decile over five years. As its name suggests, the fund has more of a focus on recovery stories than MFM Slater Growth, which means it tends to be more volatile.
Slater’s high conviction portfolios have a bias towards the small and mid-cap stocks, which explains their outperformance in 2013 when these areas of the market rocketed. However, he still managed to outperform when they sold off in 2104, hinting at the manager’s stock picking skills.
Performance of funds vs sector and index over 2yrs
Source: FE Analytics
The next three funds on the list - Franklin UK Managers' Focus, GVO UK Focus and Old Mutual UK Dynamic Equity - were first decile in 2013 and second decile last year. On a cumulative basis they are all first decile over three and five-year periods.
Franklin UK Managers' Focus is managed on team basis by Colin Morton, Paul Spencer, Richard Bullas and Ben Russon, with Mark Hall as deputy. Spencer, Russon and Hall hold FE Alpha Manager status.
The one FE Crown-rated fund aims to achieve a total return above that of the All Share over the medium to long term. It has returned double the index’s gain since launch in September 2006, rising 102.03 per cent, but it’s not all been plain sailing – in 2011 it was down 10.62 per cent when the index fell 3.46 per cent and the sector 7.04 per cent.
Jamie Seaton’s GVO UK Focus and Luke Kerr’s Old Mutual UK Dynamic Equity both hold five FE Crowns for superior performance in terms of stockpicking, consistency and risk control over recent years.
The GVO offering builds its portfolio around up to 35 UK quoted companies that have been identified as undervalued using private equity based valuation techniques. Current top holdings include Numis, Aberdeen and Jupiter.
Since Seaton was appointed to the fund in April 2009 it has returned 227.51 per cent, beating the sector average and the index by more than 100 percentage points with slighter lower annualised volatility than both.
Old Mutual UK Dynamic Equity is benchmarked against the FTSE 250 and has beaten this index over the two years looked at in this study as well as over three and five-year periods.
The fund, which can go long or short, is currently overweight support services, software, life insurance and housebuilders, while being underweight industrials, mining, oil & gas, non-life insurance, financials and real estate.
Performance of funds vs sector and index over 2yrs
Source: FE Analytics
One of the original requests from you for this article was to identify the funds that have beaten the FTSE All Share over 2013 and 2014, then see which are also first decile in the sector over three and five years. Our analysis shows 13 – including the previously mentioned Franklin, GVO and Old Mutual funds- have achieved this.
The table below shows the other 10, with their cumulative two and five-year returns. As would be expected from their strong run, mid-cap funds dominated but regular readers will spot that one large-cap portfolio that is particularly highly rated by FE’s analysts.
CF Lindsell Train UK Equity is headed by FE Alpha Manager Nick Train, holds five FE Crowns and appears on the Select 100 thanks to the managers’ ultra long-term approach, impressive performance track record and very low portfolio turnover. It’s also rated ‘AAA’ by Square Mile.
The FE Research team said: “We like the consistency of [Train’s] strategy, which will not vary depending on the economic conditions. His very selective approach allows him to run a highly concentrated portfolio, which should boost the fund’s returns if his stock picking is successful.”
Source: FE Analytics
In the next article of the series, FE Trustnet will analyse the equity income sectors to discover which funds have prospered over these two very different years.