Concerns over equity valuations, macroeconomic woes in the eurozone, heightened geo-political risk and the end of QE in the US all created increased volatility and caused the rally in risk assets – which had been in full flow since mid-2012 – to stutter.
All told, it means 2014 wasn’t a great year for the large majority of active managers with many struggling to outperform their respective benchmarks. However, in this article we look at five managers who successfully navigated last year’s tough backdrop and proved their doubters wrong.
Thomas Moore
There is no doubt that Standard Life’s Thomas Moore has a strong track record since he took over his £750m UK Equity Income Unconstrained fund in January 2009, but he had drawn criticism for only outperforming in periods when equities were surging forward.
You can understand why, as he somewhat fortuitously took charge of the mid and small-cap biased fund just months before the UK market bottomed after the financial crisis.
Our data shows the five crown-rated Standard Life UK Equity Income Unconstrained fund was a top decile performer in the IA UK Equity Income sector in the rising markets of 2009, 2010, 2012 and 2013.
Source: FE Analytics
While the large majority of experts rate Moore’s benchmark agnostic approach, some voiced concerns it hadn’t really been tested in more difficult conditions. Indeed, in 2011 – which was the only falling market Moore had been put through – his fund was bottom decile with losses of more 10 per cent.
However, last year the manager proved he was no-one trick pony by turning in top decile returns of 6.7 per cent, doubling the returns of the sector in the process.
Moore (pictured) successfully protected his investors as he made the decision to move out of his top-performing mid-cap holdings and shaped the portfolio towards the mega-cap end of the FTSE All Share on valuation grounds.
The manager has been rewarded with inflows, as his fund’s AUM more than doubled last year. Standard Life UK Equity Income Unconstrained fund has a yield of 3.94 per cent and an ongoing charges figure (OCF) of 1.15 per cent.
Steve Davies
Jupiter’s Steve Davies was another young UK manager who showed he could outperform in varying market conditions.
He took charge of his Jupiter Undervalued Assets fund in January 2012 and subsequently beat both the IA UK All Companies sector and the FTSE All Share in the following two calendar years which, as we know, was a period characterised by strong equity returns.
The manager’s focus on value, whereby he searches for unloved and out-of-favour companies, put him in a good position to outperform over that time as investors’ appetite for risk was high, plus it meant he was overweight UK domestic cyclicals which were benefitting from the improving economy.
While his £120m fund had a tough period in the first part of 2014 – thanks largely to his weighting to insurers which plunged after the Chancellor’s pension changes in the 2014 Budget – Davies’ stock-picking skills, and his tactical use of cash worked well and the fund ended the year top decile with returns of 7 per cent.
Performance of fund versus sector and index since Jan 2012
Source: FE Analytics
It means that Jupiter Undervalued Assets is a top decile performer since Davies took charge with returns of 68.24 per cent and has nearly doubled the gains of its benchmark over that time.
The fund is still relatively geared towards a strengthening UK economy, with the likes of Lloyds, Barclays, ITV and Dixons Carphone featuring in its top 10. The OCF is 1 per cent.
Jacob de Tusch-Lec
Jacob de Tusch-Lec is arguably the most exciting prospect in the IA Global Equity Income sector and his £1.7bn Artemis Global Equity Income fund has become increasingly popular with investors looking to diversify away from the UK dividend-paying market.
However, while the fund had outperformed since he launched the fund July 2010, like Moore and Davies, the fact he had only made his money during rising markets meant certain experts were waiting for him to build up more of a track record.
Our data shows that while the fund had topped the sector and beaten its benchmark between its launch and the start of last year, those returns were due to de Tusch-Lec’s top decile returns in 2012 and 2013 as he posted third-quartile losses in the falling market of 2011.
Nevertheless, the manager posted a third consecutive top decile year in 2014 which means that Artemis Global Income is the best performing fund in the sector since its launch and has comfortably beaten its MSCI AC World benchmark in the process.
Performance of fund versus sector and index since Jul 2010
Source: FE Analytics
It must be pointed out that global indices – due to the S&P 500’s double-digit gains – had a much better year than the UK. Also, given that the fund is designed to sit alongside UK equity income funds, it has a miniscule amount in the domestic market.
That being said, the US only accounts for 33 per cent of the portfolio and therefore its exposure to North America was by no means the only reason it outperformed, especially as de Tusch-Lec was overweight Europe, which was performed roughly the same as the UK last year.
Artemis Global Income yields 3.54 per cent and has an OCF of 0.84 per cent.
Judith MacKenzie
Judith MacKenzie’s five crown-rated PFS Downing Active Management fund was at the centre of one of the most ill-timed set of comments from our readers when SG’s Neil Shillito said he was buying it in February 2013.
The £10m fund, which resides in the IA UK Smaller Companies sector, had gone through a period of underperformance relative to its peers since MacKenzie had taken over the two years before that, causing some to laugh at Shillito’s decision to buy the fund.
Following bottom quartile returns in 2013 – though the fund was still up 30 per cent that year – MacKenzie proved her worth by topping the sector in 2014. It was up 23 per cent last year while the average fund in the sector lost money.
Performance of fund versus sector in 2014
Source: FE Analytics
The reason PFS Downing Active Management did so well last year is because the manager has a very different approach to her peers. She is a genuine long-term micro-cap manager, who uses private equity techniques to assess the value of businesses and will often sit on the board of the companies she buys.
Of course, we are only talking about one year’s worth of outperformance here, but Mackenzie showed in 2014 that her approach can work and that her fund can fit into a portfolio if investors want a different type of exposure to UK small-caps.
PFS Downing Active Management has an OCF of 1.56 per cent.
Mark Barnett
It would be wrong to say that FE Alpha Manager Mark Barnett needed to prove himself last year, given his long track record of consistent outperformance as manager of his various investment trusts and his five crown-rated Invesco Perpetual UK Strategic Income fund.
Nevertheless, 2014 had all the makings of a very difficult year for the manager, given that industry hero Neil Woodford had announced his decision to leave Invesco Perpetual after 26 years to set up his own investment group.
Barnett was handed the unenviable task of succeeding Woodford as manager of the multi-billion Invesco Perpetual Income and High Income funds and due to his predecessor’s strong long-term track record and huge investor following, money was expected to pour out of his funds and into the new CF Woodford Equity Income fund.
Money did indeed flow out of Barnett’s two five crown-rated funds en masse, but the reason he has made it onto the list is because despite the huge outflows and his restructuring of the portfolios, he significantly outperformed last year.
Performance of funds vs sector and index since March 2014
Source: FE Analytics
The two funds have been among the top four performing portfolios in the highly competitive IA UK All Companies sector since Barnett took over in March last year with returns 8 per cent, while the sector average has lost money over that time.
Both funds yield north of 3 per cent and have OCFs of 0.9 per cent.