However, when investors look for their UK exposure they will usually look to just a select number of names as the likes of Neil Woodford, Mark Barnett, Nick Train, Richard Buxton and Nigel Thomas have historically generated the most amount of attention.
Of course, there isn’t anything wrong with backing the household names as they all have disciplined investment approaches and have proved, time after time, they can deliver market-beating returns.
Nevertheless in this article, and with the ISA deadline fast approaching, we take a closer look at five lesser known UK funds which are highly rated by the FE Research team for those investors who want to differentiate themselves from the crowd.
GVO UK Focus
First on the list is one of the newest entrants to the FE Select 100, namely FE Alpha Manager Jamie Seaton’s GVO UK Focus fund.
The FE Research team added it to the list of recommended funds as a result of Seaton’s strategy in picking stocks, which revolves around a private equity valuation metric where the manager assesses how much a company would be worth to a private buyer and focuses rigorously on cash flow.
FE’s analysts think the five crown-rated fund, which allocates roughly a third each to large, mid and small-caps and is highly concentrated, is a good choice for those looking for aggressive capital growth.
“The fund’s excellent performance has coincided with the management of Seaton,” the team said.
“Seaton and head of research Stuart Widdowson look to incorporate the latest research into what works in private equity investing. This is an unusual approach and one that could suit investors looking for a fund with the potential to outperform the UK market.”
According to FE Analytics, the £300m GVO UK Focus fund has been the ninth best performing portfolio in the IA UK All Companies sector since Seaton took charge in April 2009 with returns of 254.74 per cent, beating its FTSE All Share benchmark by close to 130 percentage points in the process.
Performance of fund versus sector and index since April 2009
Source: FE Analytics
The fund has also outperformed the sector average in each of the last five calendar years and has beaten the index in four of them – the exception being the falling market of 2011 where it lost 2 percentage points more than its benchmark.
Its ongoing charges figure (OCF) is higher than most, however, as it stands at 1.45 per cent.
Liontrust Special Situations
The five crown-rated Liontrust Special Situations fund, while arguably better known than GVO UK Focus and certainly larger at £1.5bn, is also a new entrant to the FE Select 100 as of the latest re-balancing.
It is headed-up by two FE Alpha Managers, Anthony Cross and Julian Fosh, and while it has gone through a period of underperformance relative to the FTSE All Share over the past two calendar years largely thanks to manager’s style, the FE Research team thinks this a decent holding for any investor.
“It could easily be considered as a core holding in a portfolio because it covers the broad UK equity universe and many companies are international players,” FE Research said.
“We consider this fund to be one of the best available in the UK All Companies sector. The managers had already proven their skills with the Liontrust UK Growth and UK Smaller Companies funds and have done even better here, while the level of risk associated with the fund is the same as in the others they run.”
Our data shows that, since its launch in November 2005, Liontrust Special Situations has been the fifth best performing portfolio in the IA UK All Companies sector with returns of 223.73 per cent. The FTSE All Share has gained 87.83 per cent over that time.
That performance profile includes five consecutive years of top quartile and index-beating returns between 2008 and 2012.
The fund failed to keep pace with the FTSE All Share in the strongly rising market of 2013 – mainly as a result of Fosh and Cross’ “economic advantage” model where they focus on industry leading growth companies with intangible assets – and narrowly underperformed again in 2014.
Nevertheless the fund, which is made up of 50 stocks, has the best risk-adjusted returns – as measured by its Sharpe ratio, in the sector since its launch. Its OCF is 0.87 per cent.
Neptune UK Mid Cap
Next up is the five crown-rated Neptune UK Mid Cap fund, which is the brainchild of FE Alpha Manager Mark Martin and was launched in December 2008.
Martin recently won the best high conviction manager accolade at the inaugural FE Alpha Manager Awards as he has more than half of his fund in just 10 names, boasts an active share of more than 95 per cent and has returned almost 300 per cent since inception – comfortably beating its FTSE 250 ex IT benchmark in the process.
Performance of fund versus sector and index since Dec 2008
Source: FE Analytics
The £442m fund sits on the FE Select 100 as the team rates Martin’s process, which largely revolves around downside protection as he splits the portfolio between three types of companies which should all perform in different stages of the cycle: structural growth, recovery and self-help stories.
“By keeping at least 20 per cent of the fund in each group, Martin aims to ensure he can perform regardless of economic conditions,” FE Research said.
“He believes he can add significant value through identifying undervalued businesses that are often under researched, and that holding these makes his portfolio less volatile than the market.”
This process has worked in the past as Neptune UK Mid Cap has tended to lag slightly behind its benchmark in strongly rising markets, but comes into its own in flat or falling markets. Examples include a 12 per cent return last year when the index made 3 per cent and 4 per cent gain in 2011 when the benchmark lost 10 per cent.
The manager has also recently taken on the Neptune UK Opportunities fund for those wanting more multi-cap exposure. His Neptune UK Mid Cap fund has an OCF of 0.82 per cent.
Hermes UK Small and Mid Cap Companies
Sticking with the smaller companies theme, another fund investors could consider is the five crown-rated Hermes UK Small and Mid Cap Companies fund. The £280m fund is headed up by David Stormont, who was recently awarded the coveted FE Alpha Manager status following the re-balancing earlier this year.
It was launched in December 2008 and sits in the IA UK Smaller Companies sector.
According to FE Analytics, it has been the fifth best performing portfolio in the sector over that time with returns of 310.09 per cent, beating the sector average by close to 90 percentage points in the process.
The fund differs from others in the sector as Stormont, like Martin, has shown an ability to protect capital and this is borne out in Hermes UK Small and Mid Cap Companies’ return profile.
It underperformed the sector in strongly rising markets like 2009 and 2013 – when its average peer returned 50.18 per cent 37.18 per cent respectively – but didn’t fall as far as the sector in 2011 and was top decile in 2014 with returns of 5.1 per cent when small-caps lost money.
It is also the best performing IA UK Smaller Companies fund so far in 2015 with returns of 7.25 per cent.
Hermes UK Small and Mid Cap Companies, which is concentrated at 59 stocks, is overweight financials and consumer services and consumer goods but underweight industrials and oil and gas. Its OCF is 0.84 per cent.
Schroder Recovery
The final fund on the list is the £707m Schroder Recovery fund, which was included on the list as managers Nick Kirrage and Kevin Murphy – like Stormont – also received their FE Alpha Manager rating earlier this year.
As the name of the fund suggests, Schroder Recovery is a “deep value” portfolio as Kirrage and Murphy look for companies with bombed-out share prices that are hugely out of favour with the wider market.
This process is shown by their list of top 10 holdings as the likes of RBS, Tesco, BP, Friends Life Group and Morrisons all feature.
However, this process has worked well over the years. Our data shows Schroder Recovery has been a top quartile performer in the IA UK All Companies sector with returns of 142.94 per cent since the managers took charge of the portfolio in July 2006 while the FTSE All Share has returned 72.44 per cent over that time.
Performance of fund versus sector and index since July 2006
Source: FE Analytics
The fund is also top quartile over three and five years thanks to its market-beating 1.6 per cent gain in 2014 and top decile returns in 2012 and 2013. It is underperforming over 12 months, however, largely thanks to its bottom decile returns so far this year.
Schroder Recovery has an OCF of 0.91 per cent.