In February, investors reduced their holdings in UK and North American equity funds in favour of global, European and Japanese equity portfolios.
In fact, out of all of the equity sectors, the IA UK All Companies sector has had the biggest outflows each month since November last year, losing £615m in February alone. January was even more abysmal as the sector saw £679m in net retail redemptions.
It’s unsurprising that more and more investors are reducing their exposure to UK equities. May’s election is set to be the most unpredictable yet and, based on results, we could be facing a referendum as to whether to stay in the EU.
Of course, remembering the impact that the Scottish referendum had on the market, this doesn’t look set to do investors the world of good. Others have pointed to the fact that the FTSE 100 recently broke through the 7,000 barrier as a reason for caution.
Using FE Analytics, we look at which IA UK All Companies funds have had the biggest outflows over the last three months and ask Andy Parsons (pictured), head of investment research and advisory services at The Share Centre, Laith Khalaf, senior analyst at Hargreaves Lansdown, and Square Mile whether this is justified.
Invesco Perpetual High Income
The five FE Crown-rated fund is a seasoned favourite, having launched in 1988 and been in the capable hands of superstar manager Neil Woodford for a long period of time.
FE Analytics shows the fund has suffered outflows of £306.2m over the last three months. These come after a sustained period of redemption, following Woodford’s move to jump ship last year to start his own asset management house.
Despite seeing net outflows, the size of the fund has actually increased from £12.7bn to £13bn over the last three months under the leadership of FE Alpha Manager Mark Barnett.
Parsons said: “What that clearly shows is that that Mark has got the fund starting to look how he wants it to.”
“One of the biggest things I would always say is that, when a fund changes manager there will naturally be a percentage who follow the manager to their new venture where possible.”
“I really like Mark Barnett. He’s got an exceptional record. Neil is now doing a fantastic job with his new fund and Mark is now showing his true credentials [in the fund].”
According to FE Analytics, the Invesco Perpetual High Income fund has had a strong year with its first quartile returns of 15.94 per cent, comfortably beating the performance of its peers and the FTSE All Share index. Barnett has been at the helm of the portfolio over all this time.
Performance of fund vs sector and benchmark over 1yr
Source: FE Analytics
Invesco Perpetual High Income has a clean ongoing charges figure (OCF) of 0.92 per cent and yields 3.13 per cent.
M&G Recovery
This fund has had a particularly bad three years, as shown in the graph below.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Over the last three months, M&G Recovery has seen outflows of £501.12m. Khalaf believes some people have began to lose patience with the fund, which has been managed by Tom Dobell since 2000.
“The M&G Recovery fund has seen pretty poor performance over the last couple of years, and it’s a high-profile fund which has attracted a lot of money. Consequently, a few years of poor performance is enough to cause some investors to turn pale and head for the hills,” he explained.
“The manager, who has done a good job for more than 10 years, has recently had a bad time but we still think he has the ability to turn it around.”
M&G Recovery fund, which invests in companies that are undergoing structural changes, management changes or have had problems generally, is labelled by Khalaf as a higher risk investment.
“I would say if you’re invested in a fund like M&G Recovery, you probably need a stronger stomach than for a traditional UK equity fund because there is a higher risk of failure within the companies that are being chosen on your behalf,” he added.
M&G Recovery has a 0.91 per cent clean OCF.
Schroder UK Opportunities
Schroder’s UK Opportunities fund hasn’t had a brilliant year, having plummeted from the second quartile to bottom quartile performance. However, the fund’s performance has been picking up over the last few months.
Again, a change in management following Julie Dean’s departure in September last year could have provoked unease in investors, Parsons notes, while the fund had suffered earlier in the year after mid-caps sold off.
Last week, new manager Matt Hudson told FE Trustnet how he had changed the fund and how this was aiding performance.
“I think what you always find, and this will be the same for any fund that’s been taken over, is that the new manager will always wish to stamp their authority,” he said. “Matt Hudson, who I like for his equity income side, has changed the fund and aligned it a little bit more in terms of group.”
“To make their mark, [managers] will go through a transition phase of realigning the portfolio. Therefore, when you see this managerial change, things don’t just pick up immediately.”
“For managers to thoroughly do their due diligence on the portfolio when they inherit it, I believe it would take them a good six to nine months to fully start to get the portfolio to how they want it aligned.”
The fund has seen outflows of £178m over the last three months.
However, since Hudson took over the fund six months ago, Schroder UK Opportunities has managed to beat its benchmark and not slip too far behind its peers, as shown in the below graph.
Performance of fund vs sector and benchmark since 08/09/2014
Source: FE Analytics
Schroder UK Opportunities has a clean OCF of 0.91 per cent.
Threadneedle UK
Threadneedle UK, managed by Chris Kinder and supported by FE Alpha Manager Leigh Harrison as deputy, has managed to outperform its peers and its benchmark since the duo took over the fund in November last year.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
However, the fund has seen outflows of £172.55m over the last three months after Simon Brazier left the firm to join Investec.
Despite the manager change the fund holds an ‘A’ rating from Square Mile, which views it as an “excellent strategy to gain exposure to the larger end of the UK market”.
“Mr Kinder is a manager with conviction and diligently researched investment views and it is clear that he also makes great use of Threadneedle's sizeable UK equity research team for ideas, knowledge and opinions,” the consultancy said
“Although he has only managed this fund for a relatively short time he has successfully run other strategies at Threadneedle and is able to rely upon a welldefined research process, as well as an impressive array of investment colleagues. Mr Kinder has a thoughtful and frank persona and is plainly driven to continue the success of this strategy.”
Threadneedle UK has a 0.87 per cent clean OCF.
