Retail investors had been shunning the IA UK All Companies sector for most of 2015 but started buying funds here in June and July, only to watch the market tumble across the course of August on the back of panic over the health of the Chinese economy.
Investment Association figures show the IA UK All Companies sector was hit by net retail outflows in every month between November 2014 and May 2015, with redemptions from these funds peaking at the £975m that was withdrawn in May.
However, the peer group witnessed net retail inflows of £35m in June followed by £281m of fresh money in July, as UK stocks started to come off the record highs they had reached earlier in the year.
Of course, the fall in UK equities accelerated in August after a rout from mainland Chinese stock markets highlighted fears that the world’s second largest economy is on the brink of a so-called hard landing. The FTSE All Share is now down close to 3 per cent over 2015 to date but the graph below shows that a large chunk of these losses came over recent weeks.
Price performance of indices over 2015
Source: FE Analytics
But as can also be seen in the graph, this doesn’t mean the decision to buy UK equities was necessarily ‘wrong’. They have held up better than markets such as the US and emerging markets over the recent turbulent conditions and most of the losses have been seen the international-facing FTSE 100 rather than in mid and small-caps.
In the following article, we will use the ‘Market Movements’ tool on FE Analytics to look at the UK growth funds that benefitted from the highest inflows in the three months to the end of July and see how their short and long-term performance stacks up.
According to our data, the fund that has taken the most amount of money over recent months is Richard Buxton’s Old Mutual UK Alpha, where net inflows of around £287m have helped push its total assets up to £2.35bn. The list of top 10 best selling UK funds is dominated by active funds, although three index trackers appear.
Source: FE Analytics
Given that Buxton is a genuine large-cap manager, it’s no surprise to see that Old Mutual UK Alpha’s 5.55 per cent loss since the start of August is slightly worse than the FTSE All Share’s fall and puts it in the bottom decile of the IA UK All Companies sector, where the average fall was 3.34 per cent.
However, this is a very short time upon which to judge a fund and those putting cash into it over recent months are likely to be doing so with a long-term view. Since Buxton took over the fund in December 2009 it has made a 78.36 per cent total return, outpacing the gains of both the FTSE All Share and the benchmark.
The fund is also highly regarded by analysts, holding four FE Crowns for superior performance in terms of stock picking, consistency and risk control over recent years and being awarded an ‘AAA’ rating by Square Mile Investment Consulting & Research.
“The focus on larger capitalisation companies differentiates it from many other UK equity funds, a number of which have relied upon the recent strength of smaller and medium sized companies to outperform,” Square Mile’s analysts said. “The manager’s approach is far sighted and it can take time for his ideas to be rewarded.”
Old Mutual UK Alpha isn’t the only fund in the best seller’s list that has a decent weighting to the top end of the market-cap spectrum. Steve Davies’ Jupiter UK Growth and Simon Brazier’s Investec UK Alpha both have around 65 per cent of their assets in large and mega-caps and have outperformed over recent years.
Performance of funds vs sector and index over 3yrs
Source: FE Analytics
In addition, the two funds each hold an ‘A’ rating from Square Mile. The investment research house says the Jupiter fund’s concentrated, unconstrained portfolio means it could be best suited for long-term investors who can stomach short-term volatility while Investec UK Alpha could be better for those seeking consistent but less aggressive outperformance.
Given the fact that underlying holdings of Richard Watts’s Old Mutual UK Mid Cap and Mark Martin’s Neptune UK Mid Cap funds are less exposed to global worries, there’s little surprise that these bestsellers have held up well during the recent volatility.
The funds, which are both headed by FE Alpha Managers and hold ‘A’ ratings from Square Mile, sit in the sector’s top decile since the start of August. The Old Mutual fund has lost just 0.60 per cent over this time while Neptune’s portfolio is down 1.03 per cent.
Their outperformance is not limited to recent months, however. Both sit in the IA UK All Companies sector’s first decile over one, three and five-year periods (Neptune UK Mid Cap is the highest returning fund over five years after gaining 161.90 per cent) and have beaten their FTSE 250 benchmark over all three time frames.
Performance of funds vs sector and index over 5yrs
Source: FE Analytics
The remaining two active funds on the list of most popular products are also known for their outperformance and are ahead of the FTSE All Share since the start of August.
Nick Train’s CF Lindsell Train UK Equity has made either first or second decile returns in each of the past seven full calendar years and has doubled the gain of the FTSE All Share and the sector over five years, returning 111.43 per cent.
FE Alpha Manager Train is known for running a concentrated portfolio of around 25 stocks and is the epitome of a long-term managers as he rarely changes the portfolio as long as the holdings match up to his investment criteria. The FE Research team, which has the fund on its Select 100, said: “Achieving this impressive performance track-record with the low portfolio turnover highlights his stock picking skills.”
“We like the consistency of his strategy, which will not vary depending on the economic conditions. His very selective approach allows him to run a highly concentrated portfolio, which should boost the fund’s returns if his stock picking is successful.”
CF Miton UK Value Opportunities, which is run by FE Alpha Manager George Godber and Georgina Hamilton, has a shorter track record, but is the second highest returning fund in the sector since launch in March 2013. Over that time it’s made 58.66 per cent, while its average peer is ahead just 18.27 per cent.