Smaller companies funds have dominated the list of best performing UK portfolios since the last time the UK went to the polls on 6 May 2010, according to the latest FE Trustnet study.
The UK general election is now just days away and uncertainty is increasing given that the result has never looked harder to call with neither Labour nor the Conservatives likely to win an out-and-out majority.
With a hung parliament the most likely outcome and politics dominating the headlines, we have used data from FE Analytics to see which UK funds have performed best over the time of the current Conservative-Liberal Democrat coalition.
Of course, opinion is very much split about how much it has been down to the policies of David Cameron, George Osborne and Nick Clegg, but the UK equity market has performed well since the last general election was held on May 6th 2010.
According to FE Analytics, the FTSE All Share has gained 64.34 per cent over that time. While the S&P 500 has delivered stronger returns over the period, the UK market has beaten European, Japanese and emerging market equities.
Performance of indices since May 2010
Source: FE Analytics
The FTSE All Share made 14 per cent in the months of 2010 after the election, fell 4 per cent in the turbulent market of 2011, delivered double-digit gains in 2012 and 2013 and broke even in 2014.
It is understandable, therefore, that UK funds have performed well over the period in question.
FE data shows that, except for SF Webb Capital Smaller Companies Growth which has inexplicably lost 56.39 per cent, each of the 375 funds in the three Investment Association’s UK equity sectors has made at least 19 per cent over that time.
Nevertheless, as the table below shows, it has been small-cap orientated funds which have led the rally thanks to bombed-out valuations after the financial crisis, improving economic conditions and increased appetite for risk among investors.
Source: FE Analytics
At the top of the list is FE Alpha Manager Alex Wright’s five crown-rated Fidelity UK Smaller Companies fund with returns of 181.59 per cent.
The fund, which has topped its sector and comfortably beaten its Numis Smaller Companies ex IT sector since launch in February 2008 as a result of Wright’s value/contrarian approach, recently re-opened its doors to investors following its soft-closure in 2013.
Wright’s portfolio is one of seven IA UK Smaller Companies funds to appear on the top 10 performers list, with R&M UK Equity Smaller Companies, Schroder UK Dynamic Smaller Companies and Henderson UK Smaller Companies also featuring along with micro-cap portfolios run by Wood Street and Marlborough.
To highlight the dominance of the sector, the only funds in the IA universe to have beaten the Fidelity fund since May 2010 have been AXA Framlington Biotech, Candriam Equities Biotechnology and Polar Capital Healthcare Opportunities which have returned 254.85 per cent, 250.30 per cent and 194.91 per cent respectively.
The three other UK funds to feature on the list of top 10 performers come from the IA UK All Companies sector, though they all biased towards the lower end of the FTSE All Share.
FE Alpha Manager Mark Martin’s Neptune UK Mid Cap fund, for example, is the second best performer with returns of 160.56 per cent.
While the five crown-rated fund focuses almost entirely on the FTSE 250, Martin has demonstrated an ability to protect his investors’ capital. While Neptune UK Mid Cap underperformed against its benchmark in the strongly rising market of 2013, it made money in 2011 and 2014 when the index fell.
The other two best performing funds have been MFM Slater Growth and FE Alpha Manager Luke Kerr’s Old Mutual UK Dynamic Equity – which has the flexibility to go long and short.
Apart from the SF Webb Capital Smaller Companies, the worst performing funds since the last general election tend to be those with a high weighting to mega-caps.
The fifth worst performer, for example, has been Tom Dobell’s M&G Recovery fund with returns of 31.62 per cent.
While the fund beat both the sector and FTSE All Share in each calendar year between 2000 and 2010, it has been through a very rocky period since due to stock-specific issues and possible size constraints.
The fund, which peaked at more than £8bn in early 2012 but now stands £4.7bn, underperformed against its benchmark in 2011, 2012, 2013 and 2014 meaning its relative performance over one, three and five years now looks poor.
Source: FE Analytics
Nevertheless, there are a number of predominately large-cap portfolios which have performed well under the current coalition government such as Ed Legget’s Standard Life UK Equity Unconstrained fund and the five crown-rated CF Lindsell Train UK Equity fund.
While it has clearly been a good period for UK equity investors over the past five years or so, there have been some quite severe bouts of market volatility over that time such as the European sovereign debt crisis in 2011 and the multiple sell-offs last year.
FE data shows it has been equity income funds, which have largely underperformed their growth rivals over the period as a whole, which have coped with the volatility best.
The five funds with the lowest maximum drawdown, which measures the most an investor would have lost if they bought and sold at the worst possible times, out of the three IA UK equity peer groups since the last election all come from the IA UK Equity Income sector.
FE Alpha Manager Francis Brooke’s Trojan Income fund has had the lowest maximum drawdown of just 4.31 per cent and it is followed by Michael Clark’s two Fidelity funds and Invesco Perpetual High Income and Income funds – which were previously managed by Neil Woodford and are now under the control of Mark Barnett.
Source: FE Analytics
All of those funds, except Fidelity Enhanced Income which uses covered call options to boost income, have beaten the FTSE All Share from a total return point of view over the period as well.