Skip to the content

GARS inflows, Woodford and UK desk wars: Our best stories this week

07 August 2015

This week, the FE Trustnet team has been scrutinising Woodford’s top-performing income fund and Standard Life GARS and pondering whether size matters, as well as exploring who the king of UK equity funds is and which FE Alpha manager has been most consistent since the millennium.

Yet again this week, attentions have been focused on interest rate rises and when they’ll actually be starting.

This follows the results from yesterday’s not-so-super Thursday, as members of the Monetary Policy Committee (MPC) voted 8-1 to keep rates stuck at 0.5 per cent, despite Carney telling the nation that a rise is “drawing closer”.

The muted growth of the UK economy combined with China’s stock market collapse, the continuing Greek debt crisis and the low price of oil have kept the rise away for now.

Over in the US, markets are awaiting US non-farm payroll data with baited breath, as the result is likely to determine whether the Federal Reserve will hike rates in September or not.

It hasn’t all been about interest rates this week however – and the team at FE Trustnet has rounded up a variety of this week’s stories such as analysis of Woodford’s new fund, scoped out who is the king of UK equities and looked at whether GARS’ recent performance should be cause for concern.

From everyone here, have a great weekend.

 

Can Neil Woodford’s Equity Income fund afford to get any bigger?

Reporter Lauren Mason picked the brains of financial experts to find out how big is too big when it comes to Neil Woodford’s UK Equity Income fund.

Launched in June last year, the star manager’s fund has superseded expectations of even the biggest Woodford fans, having almost tripled the performance of its peer average and outperformed its FTSE All Share benchmark six times over.

Performance of fund vs sector and benchmark since launch

 

Source: FE Analytics

However, the fund has now surpassed Woodford’s previous fund, Invesco Perpetual Income, in size and stands at a whopping £6.74bn. Is this rapid growth sustainable for a fund that relies on smaller companies for half of its returns?

Experts unanimously agreed that there is not a lot to worry about, with Chase de Vere’s Justine Fearns saying: “It is more about the experience of the people running the money, the underlying investment philosophy and process and the operational structure that determines whether or not a fund will be able to deliver positive performance over time.”

“However, to give a vaguely direct answer, we would say, there is probably lots [of growth room].” 



Should you be worried by Standard Life GARS' recent losses, volatility and inflows?

Speaking of size, senior reporter Daniel Lanyon asked the experts whether investors should be concerned about the ever increasing size of the now £26bn Standard Life GARS fund, which suffered its first negative quarter at a time that inflows have been rapid.

Standard Life’s Guy Stern said that its recent volatility and negative returns were nothing to do with the amount of money the managers were taking on board.

 “The portfolio is a very large portfolio and we always felt like it was going to be large portfolio. You can see from the strategy – what has been at a play in the portfolio – they are all accessed from the macro basis,” Stern said.

Ben Willis, head of research at Whitechurch Securities, said the fund’s greater volatility may well be due to its movement into Japan and Europe but that he doesn’t think the growing size, these particular strategies or the recent losses are a cause for investor concern.

“There is scope for them to take on risk and I agree with the areas they are moving into on a valuation basis. They are very cautious and they are not going wholesale [into these equities],” he explained.

“However, it will add to the volatility of the fund but they are very careful and have a lot of institutional money. I'd like to think they are not going to do anything stupid.”


 The fund proving UK equity income investors don't need to own the same old stocks

Editor Gary Jackson spoke to Standard Life’s Thomas Moore on Monday, who warned that UK Equity Income investors need to brace themselves for a storm that is threatening to bomb out some commonly-held stocks in the sector.

The investment director said that investors should steer clear of so-called ‘bond proxies’ – large, popular stocks with particularly high dividend yields that are often found in the oil, tobacco and utilities sectors.

Moore’s unconstrained, bottom-up approach pays no attention to weightings in the FTSE All Share and he will only own a stock if he likes it, which he believes to be a far more profitable strategy than sniffing around blue-chips.

“We don’t feel obliged to own the same mega-cap income stocks as most income funds and we don’t feel we’re taking on more risk to achieve that,” the manager said.

“The reasons why conventional income managers will tell you they hold the likes of Glaxo and Shell will be for a high yield and to control risk by avoiding deviating from the index excessively. I think both of those arguments are bogus.”

 

Desk wars: Which group is the king of UK equity funds?

In this relatively light-hearted research based article, news editor Alex Paget tried to distinguish which asset management group had the most well-rounded UK equity funds available to investors.

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).

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.

 

Source: FE Analytics


As the table shows, it was the Schroder ‘business cycle’ (or ex-Cazenove) UK desk which has come out of top.

Combining an equally weighted portfolio of the Schroder UK OpportunitiesUK 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 most consistent FE Alpha Managers of the millenium

We lent heavily on FE Analytics again for this article, as Paget highlighted which FE Alpha Managers have been the most consistent at beating their peer group composites since the turn of the century.

To qualify, all had to carry a current Alpha rating, been running funds or trusts since January 1 2000 and not have taken any extended period away from fund management during the period in question. That criteria reduced the current list of FE Alpha Managers from 175 to just 30.

In first place, after beating his peers in every year since 2000 (except 2002) was small-cap guru Giles Hargreave. He was followed by Nick Train and Leigh Harrison in joint second place with their 13 years of outperformance. 

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.