Star manager Ed Legget is to leave Standard Life Investments with immediate effect, according to the group, meaning he is to stand down from his highly-rated £1.3bn UK Equity Unconstrained fund. 
While not one to soften losses in a falling market, Legget has built up a strong investor following thanks to his highly benchmark agnostic value approach to market, which revolves around picking out of favour companies where he sees a potential for change.
Legget (pictured) is to join Artemis and take over Artemis UK Growth when manager Tim Steer retires at the end of the year.
According to FE Analytics, Standard Life Investments UK Equity Unconstrained has been the second best performing portfolio in the competitive IA UK All Companies sector since he took charge in April 2008 with returns of 210.61 per cent.
As a point of comparison, the FTSE All Share has returned 55.68 per cent over that time.
Performance of fund versus sector and index since April 2008
Source: FE Analytics
The fund is also top quartile over one year and top decile over three and five years, thanks to its first-decile returns in 2009, 2010, 2012 and 2013.
Standard Life Investments UK Equity Unconstrained will now be under the stewardship of Wesley McCoy, who had previously managed the portfolio prior to Legget.
While the group says the fund’s process will remain the same and that McCoy will be supported by a large UK equity team, Legget’s departure will no doubt come as a blow to unitholders.
Of course, there is no need to write off McCoy and the fund just yet; meanwhile some investors will choose to follow Legget to Artemis. However, for those looking for a change we examine five funds that could act as alternatives to the portfolio.
Standard Life Investments UK Equity Income Unconstrained
Investors don’t necessarily have to look far for a possible replacement, as Thomas Moore’s five crown-rated Standard Life Investments UK Equity Income Unconstrained is run using the same approach albeit with an income mandate.
Like Legget, Moore has become increasingly popular among both private and professional investors due to his benchmark agnostic approach, focus on unloved companies and all-cap remit. He has also delivered stellar returns to investors.
According to FE Analytics, the £880m fund has been the fourth best performing portfolio in the IA UK Equity Income sector since he took charge in January 2009, beating the FTSE All Share by more than 100 percentage points in the process.
Performance of fund versus sector and index since Jan 2009
Source: FE Analytics
While Moore was slightly fortuitous in taking charge just months before the market bottomed after the global financial crisis, he has proven he can outperform in varying market conditions. In fact, apart from the falling market of 2009, the fund has been top quartile in every full calendar year since he has been at the helm.
Square Mile, which has awarded the fund with an ‘A’ rating, says Standard Life Investments UK Equity Income Unconstrained is a top quality offering for investors.
“For investors looking for a truly actively managed UK equity income strategy which pays little attention to the underlying benchmark then this strategy is most worthy of consideration,” Square Mile said.
“Although he may not have as much experience as some of his more well-known UK equity income contemporaries, Moore appears passionate about this strategy and keen to validate both SLI’s research process and his own abilities.”
Moore, who focuses on dividend growth rather than headline yield, has also increased the fund’s dividend in every year since he has been manager. Standard Life Investments UK Equity Unconstrained currently holds 36.5 per cent in the FTSE 100, 48 per cent in the FTSE 250 and 5.7 per cent in the FTSE Small Cap and yields 3.38 per cent.
Its clean ongoing charges figure (OCF) is 1.15 per cent.
Invesco Perpetual UK Growth or Invesco Perpetual UK Aggressive
If investors want to look outside the Edinburgh-based group but still want a value orientated fund, FE Research’s Thomas McMahon says FE Alpha Manager Martin Walker’s Invesco Perpetual UK Growth or UK Aggressive funds are good options.
McMahon points out how both funds (UK Aggressive is a more concentrated version of the UK Growth fund, which tends to have higher turnover) are interesting options for investors who are bullish on the UK economy or who want to take up an aggressive position for the long term.
“Walker thinks there is a good chance of the economy surprising to the upside in the near future and sees value in cyclical sectors as a result. He thinks investors who stick to the safe haven defensive sectors are taking more risk than they realise thanks to the high valuations in those areas,” McMahon said.
“Walker’s point of view has been given some credence by the recent signs of wage inflation, which he saw signs of long before it became so widely accepted.”
“The portfolios have historically done best in rising markets and have added a lot of value to their benchmarks under the current manager. Given their aggressive approach, they are better suited to longer term investors who can hold through down markets in which the fund could well underperform.”
Walker, who predominately focuses on FTSE 350 companies, has managed his £1.5bn UK Growth fund since June 2008 over which time it has been a top quartile performer with returns of 85.43 per cent.
He took charge of the £250m UK Aggressive fund in December 2012 and, while it is only a short period of time, it has been a top decile performer and has beaten the sector average by close to 30 percentage points.
Performance of fund versus sector and index since Dec 2012
Source: FE Analytics
Both funds count the likes of BP, Royal Dutch Shell, Rio Tinto and Vodafone as top 10 holdings. UK Growth has an OCF of 0.91 per cent, while UK Aggressive is slightly more expensive at 0.92 per cent.
As matter of fact, the IA UK All Companies sector is home to variety of highly-rated value managers such as Alex Wright, Alastair Mundy, Henry Dixon and George Godber.
However, a fund which Ben Willis, head of research at Whitechurch, thinks could act as a good alternative to Standard Life Investments UK Equity Unconstrained as it has similar market-cap and risk profile is Schroder Recovery – which is run by the FE Alpha Manager duo of Nick Kirrage and Kevin Murphy.
“Schroder Recovery is basically a multi-cap portfolio but is more biased towards the top end of the FTSE All Share. The managers are deep, deep value investors as they take a three-year view and are very much willing to pay up for a company which others think is toxic and are willing to wait for the share price to recover,” Willis said.
This process is highlighted in the fact that Kirrage and Murphy hold the likes of Barclays, RBS, BP, ICAP and Tesco as top 10 holdings in their £710m fund.
This approach has worked well for them so far though, as since they took charge of Schroder Recovery in July 2006 it has been a top decile performer and nearly doubled the returns of the FTSE All Share.
Performance of fund versus sector and index since July 2006
Source: FE Analytics
The fund is also top quartile over three and five years, but is underperforming over the last 12 months due to its bottom decile returns so far in 2015. Its OCF is 0.91 per cent.
It is clear that Legget, and the other managers mentioned so far, have a fairly high risk approach to the UK equity market and so if investors are looking for a “safer pair of hands”, Willis says they could turn to FE Alpha Manager Mark Martin’s Neptune UK Opportunities fund.
Willis is a fan of Martin due to his work on his more niche five crown-rated Neptune UK Mid Cap fund, which has been a top decile performer – and more importantly comfortably outperformed its FTSE 250 ex IT benchmark – since its launch in December 2008.
Performance of fund versus sector and index since launch
Source: FE Analytics
Martin took charge the multi-cap £60m UK Opportunities fund in February this year and the manager implements the same ‘three silo’ approach on his new portfolio as he does with his mid-cap offering.
The approach means holdings are split into three groups – recovery, which is focused on companies that should do well if economic conditions improve; structural growth, which focuses on sectors that are growing despite a sluggish overall economy; and self-help stories, which consist mainly of struggling companies the manager believes have the potential to turn things around.
By keeping at least 20 per cent in each of these strategies, Martin has been able to do well across a variety of market conditions. While his funds have tended to lag slightly in strongly rising markets, he has come into his own in flat or falling ones such as 2011 and 2014.
Willis admits that Neptune UK Opportunities, which is outperforming both the sector and the FTSE All Share since Martin took charge, is by no means a like for like replacement but is an interesting opportunity nonetheless.
Its OCF is 0.77 per cent.
