GAM UK Diversified, Standard Life Investments UK Equity Recovery and SVM UK Opportunities are among the funds that have benefitted the most from FE’s latest Crown Rating rebalancing.
Of the eight funds that have jumped from one crown to five in the latest reshuffle, half of them are listed in the IA UK All Companies sector despite volatility caused by May’s UK general election and the ongoing Greek crisis.
Oliver Clarke-Williams, from FE Research (pictured), says: “The success of UK managers is a tribute to how skillful these managers are in this sector – a much higher number than you would traditionally expect for such a developed, well-researched market and often thought of as difficult to outperform in.”
FE Crown Ratings are updated bi-annually after monitoring three-year total returns and are used to show investors which funds have delivered a strong performance in terms of consistency, risk control and stock selection.
The ratings apply to unit trusts and OEICs, as well as investment trusts, life funds, pension funds and offshore funds.
In light of the new ratings being released today, FE Trustnet takes a look at the UK five funds that have reaped the most benefits from the latest rebalance, having been promoted from one crown to a coveted five crown rating.
Standard Life Investments UK Equity Recovery
Managed by David Cumming since 2009, this £38m fund has achieved a top-quartile return of 74.63 per cent over three years, outperforming its peer average in the IA UK All Companies sector by 23.76 percentage points.
Performance of fund vs sector over 3yrs
Source: FE Analytics
However, the fund has fared less well over five years when it underperformed its sector average, which it is also benchmarked against, by 7.77 percentage points, landing the fund in third quartile over this time frame.
The fund has also provided a lacklustre bottom-quartile performance over the last year, delivering a return that is less than a tenth of that achieved by its average peer.
Cummings’ bottom-up, high-conviction stock selection process, which involves investing in companies that are undergoing significant change or restructuring, could mean that the fund is likely to perform better over the longer term.
Adrian Lowcock, head of investing at AXA Wealth, said: “David Cumming invests in medium and large companies which are under restructuring and recovery. Income is not a concern within this fund.”
“Generally speaking the funds that have been promoted [within the FE Crown rating system] are value-focused stock pickers with a style towards recovery and change.”
Currently, the fund’s top four holdings are all in UK banks – Barclays has a 6 per cent weighting, Lloyds Banking Group has 5.7 per cent, Royal Bank of Scotland has 4.9 per cent and HSBC has 4.8 per cent.
Standard Life Investments UK Equity Recovery has a clean ongoing charges figure (OCF) of 1.02 per cent.
Also in the IA UK All Companies sector, JOHCM UK Dynamic is on the FE Research Select 100 list because of the FE Alpha Manager’s strong track record and has been highly recommended by the AFI panel of leading financial advisers.
The £337m fund, managed by Alex Savvides, has delivered a strong three-year return of 68.69 per cent, significantly outperforming both its sector average and FTSE All Share benchmark. It has also outperformed its sector and benchmark over five years, delivering a top-quartile return.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
However, the aggressive growth fund has struggled to maintain its outperformance over time periods than a year to date. The FE Research team, though, says that the fund can tolerate short-term losses in the pursuit for long-term gains.
“It is important to consider the performance of the fund over a minimum period of three years,” it explained.
“The recovery process takes time to come to fruition and then it needs to be acknowledged by the market; therefore it is a strategy that requires patience. Savvides likes firms that have a long track record, well established brands and leadership in their sector, which demonstrates they are capable of achieving great things.”
JOHCM UK Dynamic, which has a performance fee of 15 per cent that applies for any outperformance over the benchmark, has a top-quartile alpha ratio, Sharpe ratio and a top-quartile maximum drawdown over three years.
The fund has a clean OCF of 0.74 per cent.
Managed by Neil Veitch since 2006 and deputy-managed by Craig Jeruzal since last year, the £107m fund has achieved a total return of 61.1 per cent over three years, outperforming its sector average and FTSE All Share benchmark by 10.73 and 21.46 percentage points respectively.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
What’s more, the fund has achieved a top-decile annualised volatility over the same time frame, which is particularly unusual for a high-conviction fund that invests in companies recovering from a difficult period.
As to be expected from a recovery fund, SVM UK Opportunities has delivered its best performance over the longer term, with a top-quartile return of 149.85 per cent over 10 years.
However, the fund’s performance has been far more volatile on a year-by-year basis, faring particularly badly during the financial crash of 2008 and resulting in a bottom-decile return. The fund also delivered a bottom-decile performance in 2011.
The Square Mile team, which has awarded the fund an ‘A’ rating, said: “Historically, this has not been a fund for the timid. The fund suffered bruising underperformance during 2008 only to leap back to life as the stock market recovered in 2009.”
“Few investors are looking for such excitement, not least Mr Veitch, and over recent years the manager has introduced various changes to the way he constructs his portfolio in an attempt to moderate volatility.”
SVM UK Opportunities has a clean OCF of 1.08 per cent.
Over three years, this £232m fund has achieved a top-decile annualised volatility and top-quartile alpha ratio, as well as outperforming its sector average and benchmark.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
The fund, which has been managed by FE Alpha Manager Andrew C Green since 1990, has also performed particularly well over the long term, achieving a total return of 888.44 per cent over 20 years. This is outperformance of its average peer in the IA UK All Companies sector by 567.2 percentage points.
The fund is in the top 10 holdings of GAM Star Growth and GAM Star Cautious funds, which are both managed by Charles Hepworth and James McDaid.
McDaid said: “[The fund’s] outperformance has been driven by stock selection in banks, stock selection in consumer services; an underweight stance in the oil & gas sector and stock selection, along with an overweight position in the healthcare sector.”
“Individual stocks that have contributed to performance over the three years to 30 June 2015 include Aviva, ITV, Dixons Carphone, Royal Bank of Scotland, Greencore and Smith & Nephew."
“Over the period the fund has benefitted from the manager’s approach of balancing more traditional recovery plays with holdings in companies that are compounding returns over time, which also trade at a discount to intrinsic value."
The fund has a contrarian investment style, and uses technical analysis to find undervalued and often overlooked areas of the market.
GAM UK Diversified has a clean OCF of 1.11 per cent.
Elite Webb Capital Smaller Companies Income & Growth
This fund is likely to be off of many investors’ radars as it is only £4.2m in size and is unavailable on most platforms.
However, it has delivered a strong if volatile performance over the last three years, returning 61.15 per cent and outperforming its peer average in the IA UK Equity Income sector by 10.63 percentage points. It has also achieved a top-decile alpha ratio over the same time period.
Performance of fund vs sector over 3yrs
Source: FE Analytics
However, while the fund delivered a top-decile performance in 2013, 2014 and 2015, it didn’t fare so well in 2011 and 2012, losing 22.56 and 14.95 per cent respectively.
As such, the fund’s performance since its launch in 2010 has suffered and and it has delivered a total return of 10.16 per cent compared to its sector average’s return of 64.33 per cent.
It is important for investors to remember that manager Peter Webb didn’t take over the fund until 2012.
Currently, the high-conviction fund consists of just 23 holdings and has allocated a 60.6 per cent weighting to its top 10 stocks. Some 22 per cent of the fund is allocated to companies that are less than £50m in size.
Elite Webb Capital Smaller Companies Income & Growth has a clean OCF of 1 per cent and yields 2.53 per cent.
