Marlborough UK Multi-Cap Growth, Newton UK Opportunities and Artemis UK Growth are among the select number of UK equity funds have been able to reduce the volatility over the past 12 months despite the more turbulent conditions witnessed in 2015.
Concerns such the timing of interest rate rises from the Federal Reserve and the Bank of England, the Greek debt crisis, China’s economic slowdown and weakness in the global economy have led to a difficult time for markets.
The likes of the FTSE All Share, S&P 500, MSCI Emerging Markets and MSCI World indices sitting on losses at the end of the year’s third quarter, although some have moved – only just – into positive territory in the days since.
Performance of indices over 2015
Source: FE Analytics
FE Analytics shows the annualised volatility of the FTSE All Share was 8.79 per cent in 2014 but has climbed to 13.04 per cent in 2015 as investors went into the year in a buoyant mood but then were hit by the tough few months that have dominated headlines more recently.
Our data also shows that of the 351 funds in the IA UK All Companies and IA UK Equity Income sectors with a long enough track record, 278 have been less volatile that the FTSE All Share over the year to date.
Gervais Williams and Martin Turner’s CF Miton UK Multi Cap Income leads the pack with annualised volatility of just 5.30 per cent, followed by Thesis TM Cartesian UK Enhanced Alpha and Unicorn UK Income.
At the other end of the scale is Standard Life Investments UK Equity Recovery with its 19.28 per cent volatility while it’s been above 16 per cent in the case of Dimensional UK Value, Orbis UK Equity and Baillie Gifford UK Equity Alpha.
But we also thought it would be interesting to see if any of the funds in these two sectors have been able to lower their volatility from their 2014 levels amid all this extra market noise. Just 23 funds – or 6.6 per cent of the total – have been able to do this.
All 23 funds that have seen volatility fall can be found in the below table, along with their 2014 volatility, 2015 volatility and the change in the two.
Source: FE Analytics
As can be seen, Jeremy Hall and Andrew Kelly’s £6.1m TM Cartesian UK Enhanced Alpha fund has seen the greatest reduction in volatility. The long/short equity fund is currently cautiously positioned, mainly on the basis of valuation; in their most recent update, the managers said they are avoiding or shorting businesses on full valuations.
However, this cautious positioning is reflected in year-to-date returns, as the fund is up just 0.88 per cent – putting it in the IA UK All Companies sector’s third quartile – while the FTSE All Share is ahead with a 1.11 per cent rise.
The other 22 funds have achieved better relative performance over the year so far, though, and sit in either the first or second quartile of their sectors.
FE Alpha Manager Richard Watts’ Old Mutual Equity 1 fund is the best performer of the IA UK All Companies funds on the list with a 16.42 per cent total return; this makes it the fourth best performer from the entire sector.
The four FE Crown-rated fund is slanted towards mid-caps, given Watts’ specialisation in this part of the market; it has 72 per cent of assets in the FTSE 250 and just 8 per cent in the FSTE 100.
It’s not surprising to see this and mid-cap funds such as Threadneedle UK Mid 250 and AXA Framlington UK Mid Cap in the list of those with falling volatility, even that this part of the market has been relatively unscathed by the market turmoil.
Furthermore, small-caps have held up well this year like the FTSE 250, posting gains as the FSTE 100 (with its high international exposure) fell.
This explains why the likes of Elite Webb Capital Smaller Companies Income & Growth and MFM Bowland, which have a high small-cap weighting, have seen their volatility ease this year.
Performance of indices over 2015
Source: FE Analytics
Not every FTSE 100 investor has struggled with higher volatility though. Investec UK Alpha and CF Lindsell Train UK Equity both have significant weightings to large-caps but their avoidance of energy and mining stocks, which have been some of the hardest hit areas of the market in the sell-off, has helped create a smoother ride.
Another common theme is ethical funds as Premier Ethical, Alliance Trust UK Ethical and Alliance Trust Sustainable Future UK Growth appear on the list. Their volatility has been aided by their structural underweights to energy and mining businesses.
It’s also interesting to note that one member of the IA UK Equity Income sector has lowered its volatility: CF Miton UK Multi Cap Income. This fund is another that looks further down the market-cap spectrum and has little is those areas hit hard by the turmoil.