Fidelity UK Opportunities, Unicorn UK Income and Standard Life Investments UK Smaller Companies are among the funds that have bounced back from losses in 2014 to hand their investors double-digit returns this year, research by FE Analytics shows.
The year to date has seen a ramp-up in volatility thanks to concerns such as the timing of the Federal Reserve’s first interest rate rise since the financial crisis, the Greek debt negotiations and concern over the economic slowdown in China and the country’s currency devaluation.
Given the global nature of these worries, the FTSE 100 bore the brunt of the year’s turmoil. The blue-chip index has made just a 0.78 per cent total return, while the FTSE 250 and FTSE Small Cap indices have both made more than 8.5 per cent.
Performance of indices over 2015
Source: FE Analytics
FE Analytics shows that 60 funds within the IA UK All Companies, UK Equity Income and UK Smaller Companies sectors posted a negative return in 2014 but are up by 10 per cent or more over 2015 so far.
As would be expected from where the action has been in the UK market, many of these funds have bias towards the small-cap end of things – which would have hurt performance last year but has been very helpful over recent months.
Within the IA UK All Companies sector, Fraser Mackersie’s Unicorn UK Growth fund has staged the biggest bounceback this year with more than 20 percentage points sitting between its 2014 total return and the gain made over 2015 so far.
Source: FE Analytics
Unicorn UK Growth is benchmarked against the FTSE All Share, but its main hunting ground is small-caps; regression analysis shows 84 per cent of returns over the last three years have come from the FTSE Small Cap index, with the remaining 16 per cent being attributed to the FTSE 250.
Paul Mumford’s Cavendish Opportunities sits in second place after making up 19 percentage points of performance. Mumford, whose fund is benchmarked against the FTSE Small Cap ex ITs index, recently told FE Trustnet which stocks have been boosting his performance this year.
Fidelity UK Opportunities, which is headed up by FE Alpha Manager Leigh Himsworth, is the only other fund on the list where 2015’s return is more than 15 percentage points higher than 2014’s.
The £71m fund does have 28.1 per cent in the FTSE 100, including names such as BT Group and Lloyds, but this is still a significant underweight to its FTSE All Share benchmark’s weighting. It has 43.3 per cent in FTSE 250 and 7.6 per cent in the FTSE Small Cap, both overweights.
All of the IA UK All Companies funds in the table are in the sector’s top decile over the year to date, with most having been in the bottom decile during 2014 after making a loss. When we look at the IA UK Smaller Companies sector, the average fund here made a 1.65 per cent loss in 2014 but is ahead 12.57 per cent in 2015 so far.
The below table shows the bouncing-back funds that sit in the peer group’s top quartile over the year to date. In total, 23 products have gone from making a loss to posting double-digit gains.
Source: FE Analytics
FE Alpha Manager Harry Nimmo’s (pictured) Standard Life Investments UK Smaller Companies is the one that has seen the biggest turnaround: it’s 19.07 per cent return this year is 27.61 percentage points higher than the 8.54 per cent loss it made in 2014. 
Nimmo attributed his difficulties in 2014 to a “major market over-reaction”, which saw mid and small-caps aggressively sold in a rotation away from risk assets by hedge funds, multi-asset funds and all-share mandates. However, his performance this year has put the fund in fifth place in the 51-strong peer group.
Two other funds on the table have returned more than the Standard Life Investments offering over the year to date: JPM UK Smaller Companies and Franklin UK Smaller Companies.
Georgina Brittain has managed JPM UK Smaller Companies since 2000. Over the past 10 years her process – which combines screening companies for a combination of price and earnings momentum, value, and quality as well as applying a behavioural finance model – has led to a 145.76 per cent total return, outperforming both is average peer and the FTSE Small Cap (ex IT) benchmark.
Franklin UK Smaller Companies is headed by FE Alpha Manager Paul Spencer and Richard Bullas, who take a top down perspective on financial markets and use this as a framework for bottom-up stockpicking. Since the managers took over the fund in May 2012, its 98.13 per cent return makes it the sixth best performing fund in the sector.
When it comes to the IA UK Equity Income sector, only one member has gone from a loss-making 2014 to a double-digit 2015 and that’s Fraser Mackersie and Simon Moon’s Unicorn UK Income.
Source: FE Analytics
Like most of the funds mentioned in this article, it is biased towards the small-cap end of the market. The fund had a very difficult 2014 owing to the death of former manager John McClure, the small-cap sell-off and outflows, but has made just over 11 per cent, but has moved into the top decile of the equity income sector this year.
Across the whole Investment a total of 522 funds made a loss in 2014 but went on to post double-digit gains this year, so in a coming article we’ll take look at some more portfolios that have managed to achieve this.
