It is clear that investors wanting exposure to the UK equity market are spoiled for choice, with no less than 410 funds currently sitting in the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors.
Of course, many of the best performing funds in those peer groups are run by small or boutique groups (just think of Unicorn UK Income, Lindsell Train UK Equity and Trojan Income), but it is usually the funds run by the industry’s giants that attract the most money.
But with the likes of Schroders, M&G, JP Morgan, Jupiter, Columbia Threadneedle and Invesco Perpetual on offer, which has been the most deserving of those flows?
In this relatively light-hearted article, we attempt to find out which firm has had the top-performing and most rounded UK equity desk over the market cycle.
To qualify, all groups must have funds in the three main Investment Association peer groups and they need to have been up and running for the last eight years (which more or less covers the market cycle given it incorporates the build up to the financial crisis, the subsequent rebound and the flatter market conditions we have seen over the last year or so).
Therefore the likes of Fidelity have been ruled out, given Alex Wright launched his UK Smaller Companies fund in February 2008.
Of course, many groups have a huge array of UK funds so to build our portfolios we only included the three largest funds from each of the three sectors. The study also doesn’t include fund manager changes.
While this may not give the exact representation of a desk’s abilities, all the managers work closely as a team and each of their stock and asset allocation ideas are fed through to the head of the department. It is also the most uniform way of compiling the data.
All in all, there are 14 fund groups which qualify and between their 42 funds included in this study, they run more than £53bn.
While it may surprise a few, the Schroder ‘business cycle’ (or ex-Cazenove) UK equity desk has been the best performer over the past eight years, as the table below shows.
Source: FE Analytics
Combining an equally weighted portfolio of the Schroder UK Opportunities, UK Alpha Income and UK Dynamic Smaller Companies fund, the desk has returned a hefty 117.2 per cent over that time – placing it 4 percentage points ahead of Standard Life’s highly-rated team who came second.
The Schroder ‘business cycle’ UK desk, as named due to its approach which revolves around assessing where we are in the business cycle and adapting the portfolio to benefit, is also the best performer over five and 10 years.
Interestingly, the ex-Cazenove desk has comfortably outperformed the longstanding Schroder ‘value’ team over the market cycle. For that portfolio, we included Schroder UK Alpha Plus, Schroder Income and Andy Brough and Rosemary Banyard’s Schroder UK Smaller Companies fund.
Given the team’s past performance, it isn’t difficult to see why Schroders decided to buy Cazenove back in mid-2013.
For example, the Schroder UK Dynamic Smaller Companies fund, which is headed up by the FE Alpha Manager duo of Paul Marriage and John Warren, is the second best performing fund in the UK small-cap sector over 10 years with returns of 290.62 per cent – meaning it has beaten its FTSE Small Cap ex IT benchmark by more than 200 percentage points in the process.
Those returns have also been highly consistent, as apart from 2014 when the group’s decision to hard-close the fund led to huge outflows in what turned out to be a difficult period for smaller companies, Schroder UK Dynamic Smaller Companies outperformed its benchmark in each of the last 10 years.
Source: FE Analytics
It is a similar situation with their UK Opportunities fund, which had been headed-up by Julie Dean until her departure in September last year.
Again, 2014 turned out to be a woeful one for the fund as size concerns, stock specific issues and huge outflows following Dean’s departure left the fund in the IA UK All Companies’ bottom decile with losses of 8.62 per cent.
Nevertheless, Dean’s outperformance relative to both her peers and the FTSE All Share in five consecutive years prior to that means the now £637m fund is a top decile performer over eight and 10-year periods.
However, the performance of those two funds over the past 18 months has dragged desk’s overall performance down into the lower mid-table over one and three years.
The Schroder UK Alpha Income fund, which is managed by Matt Hudson who now also manages UK Opportunities, has arguably been the most consistent of the three. It also sitting comfortably in the top quartile of its sector over eight and 10 years, and has beaten the FTSE All Share in seven of the last 10 calendar years.
The fund currently sits on the FE Select 100 and our analysts rate Hudson highly both for income and growth investors.
“Hudson is now head of the business cycle team and manages additional mandates, with different strategies, such as the Schroder UK Opportunities fund,” FE Research said.
“While the investment process remains the same across the funds and has been tested throughout the years, the extra responsibilities could be disruptive to some strategies. We believe Hudson has been managing income products long enough for this fund not to suffer from the changes in the team.”
Performance of Hudson versus peer group composite during career
Source: FE Analytics
Standard Life Investments’ UK desk comes in second on the list, but has by far and away been the most consistent.
An equally weighted portfolio of Harry Nimmo’s UK Smaller Companies fund, Thomas Moore’s UK Equity Income Unconstrained fund and the UK Equity Unconstrained fund (which was managed by Ed Legget but is now run by Wesley McCoy) is second only to the Schroder ‘business cycle’ team over five years and sits at the top of the table over one and three years.
While it has struggled over three and five years, Nimmo’s popular small-cap fund still sits firmly in the top quartile over eight and 10 years.
It has also rebounded after its difficult 2014 where it was bottom decile with losses of 8.54 per cent, as Standard Life Investments UK Smaller Companies is now the sector’s fifth best performer over 12 months.
Both of the group’s unconstrained funds have been phenomenal performers in their respective sectors since the crash. Moore has guided his income fund to the top decile (and has beaten the FTSE All Share by more than 110 percentage points) since he took charge of the portfolio in January 2009.
Performance of fund versus sector and index under Moore
Source: FE Analytics
The Standard Life Investments UK Equity Unconstrained fund has been equally impressive (it is top quartile over one, three and five years) and while concerns have been raised by Legget’s recent departure to Artemis, McCoy – who originally launched the now £1.3bn fund in September 2009 – is seen by many as an ideal replacement.
“It is testimony to the strength in depth of Standard Life's UK equity team that they can lose someone of the calibre of Ed Legget, and fill the void with such a credible replacement ,” Hawskmoor’s Richard Scott told FE Trustnet last month.
Columbia Threadneedle has had the third best UK equity desk over eight years, as an equally weighted portfolio Threadneedle UK Equity Income, Threadneedle UK Smaller Companies and Threadneedle UK has returned 87.92 per cent over that time.
They are followed in fourth by Old Mutual Global Investors, a group which is very highly-rated by industry experts. A number of the desk’s top performing mid-cap-orientated funds weren’t included in the study given their size and shorter track records, which if included, would have altered the figures.
Performance of fund versus sector and index over 8yrs
Source: FE Analytics
In fact, the overall portfolio was brought down by the Old Mutual UK Alpha fund from the IA UK All Companies sector.
It has comfortably outperformed both the sector and FTSE All Share since star manager Richard Buxton took charge in December 2009, but its returns in the final months of 2007 and in 2008 means it is a third quartile performer over eight years.
It is a similar situation with the Invesco Perpetual portfolio. The group is renowned for its range of UK income funds and while Invesco Perpetual High Income has been a strong performer over the period in question, the UK Growth and UK Smaller Companies Equity fund’s sector-like returns over eight years have put the overall desk in sixth place.
Bottom of the table, though, is Aberdeen. The UK Smaller Companies fund is third quartile over eight years, while the UK Equity and UK Income funds are languishing in the bottom quartile of their respective sectors.
It means an equally weighted portfolio of the three funds has returned just 46.5 per cent over that time, underperforming the FTSE All Share by 5 percentage points.