Last week Miton’s George Godber gave us five reasons why investors should consider buying value funds at the moment, but pointed out that there are relatively few UK equity offerings using this style.
According to the FE Alpha Manager, value investing can offer investors the potential for long-term outperformance, an attractive source of diversification from the more typical UK portfolio and protection against the worst of market falls.
The manager said: “All investment styles have good times and bad times, so there will be times when value won’t be the best approach. You don’t want to be in a value fund, for example, if we’re in the middle of a tech boom but over the long term we think value performs extremely well.”
Of course, not all commentators agree that now is the time to buy value. Russ Koesterich, global chief investment strategist at BlackRock, thinks the style is at risk should economic growth continue to splutter.
“While value stocks are at risk should economic growth estimates continue to come down, momentum companies are exposed to more spikes in volatility, a factor that has contributed to biotech's recent underperformance. Conversely, so-called quality stocks, which generally have strong return on equity and low debt, are better supported should volatility remain elevated,” he said.
However, for those looking to add value to their portfolio for its potential long-term advantages, we take a look at five of the top performing UK funds that have a bias towards this type of investing.
CF Miton UK Value Opportunities
Godber’s own fund, which he runs with co-manager Georgina Hamilton, launched in March 2013 and is the second highest returning IA UK All Companies portfolio over that time with a 58.73 per cent gain. Only Elite Webb Capital Smaller Companies Income & Growth has returned more over this period.
Performance of fund vs sector and index since launch
Source: FE Analytics
Before joining Miton in 2013, Godber was a co-manager on the successful FP Matterley Undervalued Assets fund and built up a strong track record in value investing, while Hamilton was an analyst on this fund. This fund has since been rebranded FP Miton Undervalued Assets and sits top decile over one, three and five years.
Given the fund’s relative youth, CF Miton UK Value Opportunities is yet to be awarded an FE Crown rating. But Godber holds FE Alpha Manager, which indicates that he has consistently performed well over the longer term.
Its profile on a range of metrics since inception is impressive: our data shows it’s currently in the sector’s top three places when it comes to alpha generation, downside risk, maximum drawdown, the number of positive months, annualised volatility and Sharpe, Sortino and Treynor ratios.
CF Miton UK Value Opportunities has a clean ongoing charges figure (OCF) of 0.89 per cent.
While the above fund is a relatively new entrant, Fidelity Special Situations has been around since 1979 but has had a number of managers over that time. Our data on the fund goes back to December 1989, over which time it’s made a 1,520.18 per cent total return while the sector average has been 508.64 per cent and the FTSE All Share has risen 508.64 per cent.
The £2.7bn fund has been headed up by FE Alpha Manager Alex Wright since the start of 2014 and made 4.24 per cent since then, putting it in the sector’s second quartile. The FTSE All Share is down 3.11 per cent over this time.
Performance of fund vs sector and index over Wright’s tenure
Source: FE Analytics
Wright made his name running the Fidelity UK Smaller Companies fund to great success. He took over the Special Sits portfolio from Sanjeev Shah and analysts said that Wright’s style was a good fit for the portfolio.
Square Mile Investment Consulting & Research, which has the fund on its ‘positive prospects’ list, said: “Although Wright has been in the industry since 2001 and managing assets since 2008 he is still fairly new to this fund, though clearly not the investment style.”
“Wright searches for unloved and out of favour stocks which are entering a period of positive change. He is ultimately looking to purchase companies before the market has recognised their improving growth prospects and as such, he has a value and contrarian investment style.”
Fidelity Special Situations has a 1.16 per cent clean OCF.
R&M UK Equity Long Term Recovery
Next up is this £112.2m fund, which has been managed Hugh Sergeant since launch in September 2008. While the fund is not a pure value fund, Style Research data shows it has 26 per cent of its assets in large value stocks, 6 per cent in mid-cap value and 22 per cent in small-cap value.
Since inception, the fund has posted a 116.83 per cent total return, putting it in the IA UK All Companies’ second decile and doubling the gain of the FTSE All Share. However, its focus on out-of-favour recovery stocks means that it has been one of the most volatile funds in its peer group, as well as sitting bottom decile for maximum drawdown.
Performance of fund vs sector and index since launch
Source: FE Analytics
Square Mile rates this fund highly, giving it an ‘AA’ rating.
“This fund is a little like a whisky drinker who prefers his tipple not only neat, but at full cask strength. Investors need either an iron constitution or to recognise that a little may go a long way,” the group’s analysts said.
“We have a high regard for Sergeant who has been investing in recovery type stocks throughout his career and he has built an enviable performance record running similar mandates. However, this is a high risk, high return strategy that really needs to be considered over the long term.”
R&M UK Equity Long Term Recovery has a clean ongoing OCF of 1.23 per cent.
Standard Life Investments UK Equity Income Unconstrained
Thomas Moore’s five FE Crown-rated Standard Life Investments UK Equity Income Unconstrained fund has an impressive track record and is top decile over one, three and five years as well as during the past three full calendar years.
Performance of fund vs sector and index over Moore’s tenure
Source: FE Analytics
The manager’s approach pays no attention to the make-up of the FTSE All Share and he only owns a stock if he has a positive view on it. This results in an unconstrained, concentrated and all-cap portfolio that looks very different from the index.
The portfolio is currently overweight the mid and small-cap value parts of the market, according to Style Research, although it is not solely focused on investing with a value style.
FE Research recently added the fund to its FE Invest Approved list of preferred funds, where its bias towards mid-caps, strong stock selection and differentiation from the typical UK equity income fund were highlighted.
Standard Life Investments UK Equity Income Unconstrained has a 1.15 per cent OCF and yields 3.66 per cent.
PFS Chelverton UK Equity Income
Another UK equity income fund with high exposure to value names is David Horner and David Taylor’s £417.9m PFS Chelverton UK Equity Income, which is five crown rated.
The fund is first decile over one, three and five years and is the seventh highest returning fund in the sector, out of 53, since launch in December 2006. This outperformance has been aided by the fund’s preference for small-cap value stocks.
Performance of fund vs sector and index since launch
Source: FE Analytics
Horner and Taylor’s investment process focuses on the discount between the value of a company and its share price but has the aim of growing its dividend more than inflation over the longer term. This results in a low turnover portfolio of about 80 names.
Its bias towards small-caps means it tends to be more volatile than the average UK equity income fund, although our data shows it is firmly in the top quartile with regard to risk-adjusted returns measured through the Sharpe, Sortino and Treynor ratios.
PFS Chelverton UK Equity Income has a 0.92 per cent clean OCF and yields 3.40 per cent.
