Concerns such as the general election in May, the timing of interest rate rises and the China-induced market correction have led to a difficult 2015 for UK equity investors, but not all funds specialising in the asset class show lacklustre returns for the year so far.
FE Analytics shows that 85 of the 405 funds spread across Investment Association’s UK All Companies, UK Equity Income and UK Smaller Companies sectors have posted total returns of more 10 per cent over the 10 months in question. Some 27 are up more than 15 per cent while six have made more than 20 per cent.
As the table below shows, the highest returning fund has made just over 30 per cent – the MFM Techinvest Special Situations fund was up 30.98 per cent by the end of October.
Source: FE Analytics
The £6.8m fund, which is managed by Conor McCarthy and Darren Freemantle, resides in the IA UK Smaller Companies sector and focuses on companies “whose future prospects do not appear to be fully reflected in the current stock market price”.
It is currently the best performing fund in its sector over three and six months in addition to over the year to date. However, performance over the longer term also looks good – it’s returned 79.54 per cent over three years and 115.07 per cent over five, sitting in the top quartile over both periods.
However, the fund might not be the best option for more cautious investor. While its annualised volatility since launch is only slightly higher than the average UK small-cap fund at 16.29 per cent, the fund has the second highest maximum drawdown (at 63.17 per cent) and the least positive months of sector.
As can be seen from the table, 2015 has been a year when small-cap portfolios have outperformed. The FTSE 100 was just 0.88 per cent by the end of October and had spent several weeks in negative territory; the FTSE Small Cap index, on the other hand, was up 8.51 per cent.
This is largely due to the fact that international facing large-caps were hit by concerns over the health of global economic growth, while the mining and oil & gas sectors – which account for a significant chunk of the index – were hurt by falls in the prices of their underlying commodities.
Small-caps were largely insulted from this, as they are more orientated towards the UK economy – which is seen as one of the relative bright spots of the global economy.
Performance of indices over 2015
Source: FE Analytics
Harry Nimmo’s Standard Life Investments UK Smaller Companies fund comes in second place with a 21.68 per cent return. The £1.2bn fund had tough time in 2014 and dropped into the sector’s bottom quartile with an 8.54 per cent loss, but has outpaced its average peer by 9.14 per cent over 2015.
Threadneedle UK Smaller Companies, Franklin UK Smaller Companies and JPM UK Smaller Companies are other IA UK Smaller Companies funds that appear in the list of those making double-digit gains. In fact, only 14 of the peer group’s 51 members made less than 10 per cent. One fund – SF Web Capital Smaller Companies Growth – has made a 13.15 per cent loss.
It’s not only smaller companies that have managed to make double-digit gains. There are 48 funds from the IA UK All Companies and IA UK Equity Income sector positing total returns in excess of 10 per cent, although given how the market has been many of these have significant exposure outside the FTSE 100.
Keith Ashworth-Lord’s ConBrio Sanford Deland UK Buffettology fund leads the pack here with its 20.85 per cent gain. The fund has exclusive rights to use the Buffett name and holds a 10-year licence to copy the distinct long-term, value-orientated approach of legendary investor Warren Buffett.
Source: FE Analytics
As well as being the highest returning fund over one year and three and six months, Ashworth-Lord’s portfolio is placed seventh of 259 IA UK All Companies members over three years after gaining 72.68 per cent – double the return of its average peer.
FE Alpha Manager George Godber and Georgina Hamilton have two funds on the list: CF Miton UK Value Opportunities and FP Miton Undervalued Assets. As their names suggest, these are value-orientated portfolios but have managed to perform well over the turbulent conditions of 2015.
Both funds only have around 20 per cent in the FTSE 100 with Godber recently telling FE Trustnet that exposure to blue-chips is almost at its lowest level ever due to difficulty in finding value in this part of the market.
“We are really struggling to find value in the FTSE 100. We have almost our lowest exposure there since launch – we have five FTSE 100 shares in now and when we launched we had 25,” he said.
“What you’ve seen in the last two and a half years is the good bit of the FTSE 100 – the Unilevers, the SABs – have become very expensive. They are very high-quality companies, but they’re also priced that way.”
“The bad bits, or those that have too much debt or fail our safety check when it comes to cash flows analysis, are the mining sector, oil companies, food retailing and the banks. You’re sticking a line through quite a lot of the market when you rule out those companies.”
The other non-smaller companies funds tend to hunt further down that market cap spectrum, with the likes of PFS Chelverton UK Equity Growth, CF Miton UK Multi Cap Income and MFM Slater Income building their track records through holdings outside of the FTSE 100.
