Over the past year the top three best performing UK growth funds all belong to the same fund group: Old Mutual, according to research by FE Trustnet.
Richard Watts, manager of the £1.8bn Old Mutual UK Mid Cap and £121m Old Mutual Equity 1 funds, has the two best performers over the past year while Luke Kerr’Luke Kerr’s £311m Old Mutual UK Dynamic Equity fund is third best. Both Watts and Kerr hold FE Alpha Manager status.
The three funds have performed strongly over the longer term as well as being amongst the best performers in the IA UK All Companies sector over shorter time frames.
Performance of fund, sector and index over 1yr
Source: FE Analytics
While Richard Buxton is usually the go-to option for investors who want exposure to Old Mutual’s equity desk, a number of experts say they can afford to broaden their horizons.
Mark Dampier, head of research at Hargreaves Lansdown, has been a fan of the Watts and Kerr as well as the wider team at Old Mutual for some time and he is surprised they are not more widely held – particularly in the case of Kerr’s Old Mutual UK Dynamic fund.
“They have been doing really well for years. They are really underestimated,” Dampier (pictured) said.
“The whole Old Mutual team are really underestimated. I am shocked that more people haven’t bought into Kerr's fund. Probably, nobody has heard of Luke [Kerr]. He is probably one of the best fund managers that has never been heard of. You never see him quoted anywhere. I am amazed.
“We have been supporting the team for more than a decade and had Old Mutual UK Dynamic since day one. Nothing has changed for us, it is a really good team.”
Kerr’s Old Mutual UK Dynamic Equity is a high-conviction UK growth portfolio that draws on the best ideas from the group’s UK equity team, including Richard Buxton’s £2.2bn Old Mutual UK Alpha fund.
However, Kerr is mainly invested in the FTSE 250 and his fund can also take short positons to add extra value while Buxton tends to favour large cap stocks in the FTSE 100 and is long only.
In Old Mutual UK Dynamic Equity, the manager has been betting big on the UK recovery in housing with large positions in house builders as well as some newly listed stocks such as Auto Trader and Just Eat.
Buxton has one of the best reputations for stock picking and alpha generation over the longer term but his fund has struggled to beat the index and his sector peers more recently.
The fund is bottom decile of the IA UK All Companies sector in 2015 returning 4.89 per cent while the FTSE All Share gained 6.13 per cent. The other three funds are top decile.
Performance of fund, sector and index in 2015
Source: FE Analytics
However, Buxton has beaten both sector and index in each of the previous three full calendar years. Over the longer term – five years - the fund is top quartile with a return of 61.87 per cent. This is a more than 20 percentage points ahead of the gain in the FTSE All Share.
Performance of fund, sector and index over 5yrs
Source: FE Analytics
Buxton recently told FE Trustnet he is more bullish than ever and that investors should not fear the recent market weakness seen since Greece’s impasse with its eurozone creditors came to an acute financial worry.
Dampier says Kerr and Watt’s mid and small-cap bias is the major reason their funds have so considerably outperformed Buxton’s UK Alpha portfolio.
“Old Mutual UK Alpha is a very different fund, it does invest in the FTSE 350 but you can’t really compare them. Mid-caps have done better on the whole, apart from March 2014. This year small and mid-caps have had a better year so far, much better than larger than stocks.”
Dampier bought Old Mutual UK Dynamic Equity several years ago but recently sold the fund to alter his risk profile.
“I had already made a mammoth profit from it and I wanted to move more money into income funds. It is nothing to do with the fund, it's purely personal. I actually regret it and think maybe I shouldn't have done it - I only did it recently,” Dampier said.
“I'm getting older and I might want more income later. I've also kept some of it in cash as well and gradually re-doing my portfolio. However, quite often the best thing to do is to leave these things alone.”
Of the Four funds mentioned in the article Buxton’s is the cheapest in terms of charges. Old Mutual UK Alpha has clean ongoing charges figure [OCF] of 0.78 per cent. Old Mutual UK Mid Cap’s OCF is 0.85 per cent, Old Mutual UK Equity 1 is 1.09 per cent and Old Mutual UK Dynamic Equity is 1.15 per cent.