Funds from Woodford Investment Management, Miton, GLG and St James’s Place have shot to the top of their respective sectors despite being recently launched, the latest FE Trustnet research shows. 
A commonly touted ‘rule’ of investing is to wait until a fund has built up a three-year track record before making an investment. By doing this, an investor can have some idea of how the portfolio will perform in different market conditions and will be taking less of a stab in the dark.
However, doing this could mean missing out on some strong early years of performance – especially if the investor is already familiar with a manager’s proven investment style.
Adrian Lowcock (pictured), head of investing at AXA Self Investor, said: “If you know the track record of the manager and that the investment style of the new fund is in keeping with that manager then it is pretty clear what you are investing in. The fund performance shouldn’t come as a surprise.”
However, he added: “A buy recommendation should not follow the fund manager blindly to his new place as there needs to be meetings and due diligence to ensure nothing material has changed. It is also about how the managers settle into that business.”
With this in mind, FE Trustnet has looked for funds in the IA UK All Companies, UK Equity Income and UK Smaller Companies sectors that launched within the last three years and have gone on to produce some of the best returns of their peer group since.
IA UK All Companies
The CF Miton UK Value Opportunities fund, headed up by FE Alpha Manager George Godber and Georgina Hamilton, has returned 51.45 per cent since launch in March 2013. This means it’s the third highest returning fund out of 266 over this time frame.
The managers specialise in stocks that they consider to be undervalued by the wider market. Before joining Miton in 2013, Godber was a co-manager on the successful FP Matterley Undervalued Assets fund and built up a strong track record in value investing, while Hamilton was an analyst on this fund.
In a recent update, the managers said they believe that value investing can work despite the strong run-up in equity prices that has been seen over recent years: “A number of commentators have said that there is no value left in the UK market.”
“While we do think that the risks are elevated, we are pleased that our process is still highlighting and finding a number of really cheap and exciting ideas.”
GLG Undervalued Assets has made a first-decile 24 per cent return since launch in November 2013, compared with a gain of just 14.51 per cent from the average IA UK All Companies fund. It is run by FE Alpha Manager Henry Dixon and Jack Barrat.
Dixon was also a co-manager on Matterley Undervalued Assets, having been on the fund since its launch in 2008, and his fund at GLG was launched as a mirror of this strategy. As such, it is another portfolio that looks for cheap companies.
The GLG Undervalued Assets fund has been awarded an ‘A’ rating by Square Mile, whose analysts said: “We like that this is a strategy that differentiates itself from many of its peers and that the manager seems to have a calm exterior and a cool head, clearly important characteristics when running this type of mandate.”
“As such, we believe this is a fund that can act as a complement to many UK equity investment strategies and one worth considering by more benchmark agnostic investors.”
David Urch's TB EEA UK Equity Market fund has the longest track record of the three UK All Companies funds here, having launched in May 2012. Since then it has posted a total return of 77.54 per cent, against a sector average of 59.47 per cent.
Urch has focused on UK equities for more than 16 years, starting his career in the UK specialist team at Mercury Asset Management/Merrill Lynch Investment Managers. Since the start of 2004, which is as far back as our data goes for the manager, he has made a total return of 189.56 per cent, which is also 40 percentage points ahead of his peer group composite.
Half of the portfolio is currently invested in UK large-caps, with 21.8 per cent in mega-caps and 17.5 per cent in mid-caps. Top holdings include International Consolidated Airlines, Ashtead, G4S, ITV and Howden Joinery.
Performance of funds vs sector over 18 months
Source: FE Analytics
Data from the Investment Association shows investors have been fleeing the UK All Companies sector of late, with net retail outflows being posted in 10 of the past 12 months. However, our data shows that all three of the above portfolios have continued to take in fresh money.
GLG Undervalued Assets has seen net inflows of around £195m, CF Miton UK Value Opportunities has taken in £140m and TB EEA UK Equity Market £24m.
IA UK Equity Income
There’s one fund in this sector which stands out as being a new launch that has achieved success in terms of both performance and asset gathering – CF Woodford Equity Income.
Launched by equity income star Neil Woodford in June 2014, the fund has already built up assets of £5.7bn and its return of 19.88 per cent means it’s the highest returning fund in the sector over this time.
CF Woodford Equity Income is built around the long-term and contrarian style that Woodford used to make his name during his 26 years running Invesco Perpetual’s flagship UK equity income funds. Top holdings are typical ‘Woodford names’, such as AstraZeneca, GlaxoSmithKline and British American Tobacco.
Performance of funds vs sector and index since launch
Source: FE Analytics
Square Mile, which has given the fund a top ‘AAA’ rating despite its short track record, said: “This is a compelling investment proposition and one most worthy of consideration by long-term investors.”
“There is a clear and understandable investment process in place, which has been used by Mr Woodford for many years and furthermore he is backed by an experienced and likeminded team.”
SJP UK Income, which is managed by FE Alpha Manager Chris Reid of Majedie Asset Management, is the only other new launch from the sector to produce some of the best returns – it’s up 15.39 per cent since November 2014, against the average peer’s 11.96 per cent.
Reid runs the five FE Crown-rated Majedie UK Income fund with Yuri Khodjamirian and has established a strong reputation on this portfolio. Since inception in December 2011 this fund has made the sector’s second best total return with a 108.56 per cent gain.
The manager has a high-conviction style and favours companies that are out of favour with the wider market but are in the process of making a positive transformation. Top holdings of SJP UK Income include Aviva, Tate & Lyle and Rio Tinto.
IA UK Smaller Companies
Just one fund from this sector has made it onto the list and that’s Gervais Williams and Martin Turner’s CF Miton UK Smaller Companies. Both managers are known for their expertise in smaller companies and have achieved the fourth best returns of its sector since launch in December 2012 with a 75.38 per cent total return.
Performance of funds vs sector since launch
Source: FE Analytics
The fund is genuinely focused on the smaller end of the UK market. It has 73.9 per cent of its £128.2m portfolio invested in the FTSE AIM, 13.4 per cent in the FTSE Small Cap index and 4.6 per cent in the FTSE Fledgling index.
In their latest update, Williams and Turner highlighted the attractive opportunities they are seeing in the small-cap space, following a period of outperformance from the UK’s largest companies.
“The FTSE AIM All Share may have started moving but as yet this hasn’t properly fed through to the smallest companies,” the managers said.
“Mainstream stocks enjoyed the benefits of the ‘bond proxy’ run, the valuation differential between the largest and smallest stocks has opened up to be the greatest we have ever seen. This means that there is exceptional upside potential in many of our holdings – we’ve a portfolio of shares that we believe could see a price rise of 50 per cent or more at any time.”
