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Funds that have completely dominated their sectors: UK All Companies

01 June 2015

Using data from FE Analytics, and in the first article of a new series, we look at the IA UK All Companies funds that have put their rivals to shame by dominating the sector both from total return and capital preservation perspectives.

By Alex Paget,

Senior Reporter, FE Trustnet

One of the most commonly used arguments by passive enthusiasts is that the “average” active fund fails to outperform.

The major issue with this argument, of course, is that the average fund doesn’t exist. While there are some particularly poor active funds out there, a number of managers have proven time and again that they can beat the market on a consistent basis and justify their often higher charges.

In this series of articles, we will highlight the best of best by identifying which funds have completely dominated their respective peer groups over the past 10 years – starting with the highly-competitive IA UK All Companies sector, which is home to some 184 funds that have a decade-long track record.

To be included in the list, each fund has to be top quartile over 10 years, outperforming over one, three and five years and must have beaten the sector in at least seven of the last full 10 calendar years.

Capital preservation is also taken into account, as each fund has to be top quartile for its downside risk, risk-adjusted returns (as measured by its Sharpe ratio) and maximum drawdown, which shows the most an investor would have lost if they had bought and sold at the worst possible times – over 10 years.

Given the strict screening process, it isn’t surprising that only three have achieved this feat; namely Majedie UK Focus, Jupiter Growth & Income and Invesco Perpetual Income.

From a performance point of view, the five crown-rated Majedie UK Focus fund is by far the stand-out name.

The £583m fund, which is managed by Chris Field, James de Uphaugh, Matthew Smith and FE Alpha Manager Chris Reid, has been by far the sector’s most consistent performer as it has beaten both the sector and its FTSE All Share benchmark in nine out of the last 10 years.

The only year Majedie UK Focus has underperformed during that time was in 2010 – though it still made more than 10 per cent.

This means that it has been the sector’s fifth best performer over 10 years with returns of 263.88 per cent and has beaten the index by more than 145 percent points in the process. It is also top quartile over one, three and five years despite the fact it has ongoing charges of more than 2 per cent.

Performance of fund versus sector and index over 10yrs

 

Source: FE Analytics

Given the fund’s consistent returns, it isn’t too surprising to see that it has twelfth lowest maximum drawdown over the last 10 years and has had the fourth best risk-adjusted returns as well.

Majedie UK Focus differs from most of its peers as the portfolio is split into different buckets which each manager looks after. It is effectively a ‘best ideas’ portfolio of the Majedie UK Equity fund, which narrowly missed the cut due to its underperformance over the past 12 months.

The Majedie fund is a genuine all-cap portfolio as the managers currently hold 55.3 per cent in the FTSE 100, 21.5 per cent in the FTSE 250 and 6.7 per cent in the FTSE Small Cap and AIM indices.


 

Another group that has done well in the study is Invesco Perpetual as their Income fund, which carries five FE Crowns, has made the list. It is now managed by FE Alpha Manager Mark Barnett, but had been run by star manager Neil Woodford between its launch and March last year.

It had previously been in the IA UK Equity Income sector, but moved last year as a result of its failure to meet the peer group’s yield requirement.

According to FE Analytics, the £6.7bn fund has beaten the sector and its FTSE All Share benchmark in seven out of the last 10 calendar years – the exceptions being the strongly rising markets 2009, 2010 and 2012 when the fund’s more defensive characteristics fell out of favour.

It means that while Invesco Perpetual Income is a second quartile performer over three years, it sits in the top quartile over one, five and 10-year periods.

 

Source: FE Analytics

The fund’s focus on downside protection is clearly shown in the data as it has been top decile for downside risk, maximum drawdown and its Sharpe ratio over the last decade.

Though Invesco Perpetual Income is almost completely identical to Barnett’s (and previously Woodford’s) £12.8bn High Income fund, the latter didn’t quite make the cut as its returns of 25.53 per cent in 2012 were slightly behind those of the sector average. This means it has underperformed in four calendar years.

Barnett has made a number of changes since he took charge of Woodford’s old funds such as reducing stock concentrations. This has so far worked though, as both Income and High Income sit firmly in the top decile since he has been at the helm with returns of more than 17 per cent.

Barnett has also clearly proven himself over the longer term as his five crown-rated Invesco Perpetual UK Strategic Income fund – which he has managed since January 2006 and therefore nearly all the time we looked at in this study – only just missed out on making the list.

The £1.1bn fund has been top quartile for its downside risk, maximum drawdown and risk-adjusted returns over 10 years and is outperforming over all notable time frames, but didn’t make the grade because it has underperformed against the sector in four out of the last 10 calendar years.

Another fund which has ‘dominated’, however, is Jupiter Growth & Income.

According to FE Analytics, the nimble £323m fund is second quartile over one year and top quartile over three, five and 10 years. It is beating the FTSE All Share over all of those periods as well. This is because it has only underperformed against the sector in 2005, 2010 and 2014.

The fund, which typically invests in FTSE 350 companies and focuses on dividend growth rather than a high headline yield, has considerably beaten its peers at protecting capital thanks largely to its top quartile performance in the crash year of 2008 and because it eked out a small return in 2011 when the European sovereign debt crisis intensified.

It must be noted that current manager Chris Watt has only been in charge since May 2013, though, as Philip Matthews had run the fund from June 2001 up until two years ago when he went to fill star manager Richard Buxton’s sizeable shoes as manager of the Schroder UK Alpha Plus fund.


 

However, since Watt – who has managed the likes of Jupiter Responsible Income and Jupiter UK Alpha for the last eight years – took charge of Jupiter Growth & Income it has outperformed both the sector and the FTSE All Share with returns of 31.25 per cent.

Performance of fund versus sector and index since May 2013

 

Source: FE Analytics

While it has beaten its benchmark by 11.33 percentage points over that time, those returns do place the fund in the second quartile as it ranks 84th out of 267.

That is largely due to its third quartile returns in last year’s turbulent conditions. Nevertheless, it has started 2015 much more strongly than others as it is top quartile with returns of more than 13 per cent.  

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.