An investor’s dream is to find a fund that can beat the market every year no matter what the conditions and to do so with low levels of volatility and without exposing their savings to too much risk.
For a variety of reasons such as investment styles falling in and out of favour and managers making individual stock or sector errors, this simply hasn’t been the case and that is unlikely to change in the future.
But this doesn’t mean that certain active funds haven’t been exceptionally consistent in their outperformance over the longer term, though many of them have now attracted billions worth of inflows due to their strong track records.
There are, although admittedly very few, anomalies and one of the best examples has been the Majedie UK Focus fund.
History has proven that the UK equity market is typically a good hunting ground for active managers and the IA UK sectors are home to household names such as Neil Woodford, Francis Brooke, Richard Buxton, Nigel Thomas and Mark Barnett, who have all fully justified charging for active management.
However, none of them have delivered the same type of consistent outperformance as Chris Field, James de Uphaugh, Matthew Smith and FE Alpha Manager Chris Reid’s Majedie fund.
It is a ‘best ideas’ portfolio of the group’s top-performing UK Equity fund and, according to FE Analytics, it has beaten the IA UK All Companies sector and its FTSE All Share benchmark in a staggering nine out of the last 10 calendar years.
Source: FE Analytics
Out of those nine years it has been a top quartile performer in seven and they include strongly rising markets such as 2013 when it returned 34.14 per cent and falling ones such as the crash year of 2008 when it lost 6 percentage points less than its peers and benchmark.
Investment research firm Square Mile says the team at Majedie, who run the same strategy on their UK Equity and UK Focus albeit the latter is more concentrated, aim to deliver that sort of performance so this should by no-means be viewed as a fluke.
“There is a clear and defined performance objective in place with the team looking to provide investors with a sustained level of outperformance over the market cycle, and to do so in a risk-controlled manner,” Square Mile said.
“Although the performance target may look low compared to higher-octane UK equity strategies it must be remembered that the managers aspire to outperformance regardless of the market environment. This is arguably one of the harder performance objectives for it is not beholden to, or excused by, any particular investment climate or style.”
“However, we believe this approach is eminently achievable in this case for being backed by an impressive team of like-minded professionals who have honed their process over the course of many investment cycles.”
The consistency of the fund’s returns mean it has been a stellar performer from cumulative point of view as well.
Performance of fund versus sector and index since launch
Source: FE Analytics
FE data shows that since its launch in September 2003, it has been the sector’s fourth best performer with returns of 338.31 per cent, beating the FTSE All Share by more than 160 percentage points in the process.
It is also top quartile and beating the index over one, three, five and 10-year periods.
Source: FE Analytics
Given that performance profile, it isn’t too surprising the fund has been particularly good for its capital preservation.
In fact, it has been top-quartile for its downside risk, risk-adjusted returns (as measured by its Sharpe ratio) and its maximum drawdown – which calculates the most an investor would have lost if they had bought and sold at the worst possible times – over the last 10 years.
Given all that information, the question that must be asked is – how is it AUM only £583m?
One of the most common themes in this industry is that the best funds quickly become the biggest as investors flock towards them in the hope the managers can repeat their strong past returns in the future.
You only have to look at the likes of M&G Optimal Income, Standard Life GARS and CF Woodford UK Equity Income – which is already £6.2bn despite the fact it was only launched a year ago.
While Majedie UK Focus is a firm favourite on the institutional side of this industry as groups such as Schroders, 7IM and F&C all hold it in their funds of funds ranges for all the reasons listed above, it has seemingly gone unnoticed within the retail investor community.
F&C’s Scott Spencer, who works alongside Rob Burdett and Gary Potter and holds it as a top 10 holding in the F&C MM Navigator Moderate, F&C MM Navigator Progressive and F&C MM Navigator Select funds, says there is a clear reason for its relatively small-stature.
“The reason for it is fairly simple and that is because they run it to a capacity and don’t try to gather assets, so it is effectively closed. They would rather maintain performance than trying to attract new money,” Spencer said.
While it is true that Majedie doesn’t actively market the fund anymore, Majedie UK Focus is still available on most major platforms and can therefore be accessed by anyone.
Of course, the past is no guide to future returns and it could be argued that Majedie UK Focus is due a period of underperformance given its track record. However, have investors missed a trick by overlooking it in favour or more widely held funds within the highly competitive UK All Companies peer group?
Rob Morgan, pensions and investment analyst at Charles Stanley Direct, thinks so.
“Yes, it’s not really been marketed and it’s a favourite institutionally but it’s a top quality fund in my view – a bit of a hidden gem,” he said.
His thoughts are echoed by Apollo’s Ryan Hughes, who says that though it may not be the most well-known in its space, Majedie UK Focus is worth considering by any investor who wants exposure to the domestic market.
“It’s a hidden gem and I think that retail investors have missed out,” Hughes said.
“While it isn’t aimed at the retail market, the team at Majedie are very experienced and high quality and that is shown with their other funds as the numbers speak for themselves. If anyone is looking for a good quality UK fund, this is a group that should be looked at.”
Majedie UK Focus, which is a genuine multi-cap fund, is run on a type of multi manager basis as Field, Smith, de Uphaugh and Reid are given a proportion of the portfolio to run separately. This is the major reason why the fund has consistently outperformed, as it isn’t ever relying on one or two areas of the market to do well at any one time.
Currently, the fund has 63 holdings and an active share of 73 per cent. The managers have 55.3 per cent in the FTSE 100, 21.5 per cent in the FTSE 250 and 6.7 per cent in FTSE Small Cap and AIM-listed stocks. They also have 14.5 per cent invested outside of the UK market.
Majedie UK Focus’ top 10 includes a variety of companies from HSBC and Vodafone to Marks & Spencers, Barclays and Tesco.
One issue for investors may be the fund’s high ongoing charges figure (OCF), though.
The OCF is 1.53 per cent, which some investors may find off-putting. However, that has been the case since launch and therefore the managers have consistently beaten the market whilst battling against those higher charges.
