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The UK funds set for five consecutive years of outperformance

01 December 2015

As we enter the final leg of 2015, FE Trustnet takes a closer look at the UK funds which look set to have beaten their respective sectors in each of the past five calendar years by January 2016.

By Alex Paget,

News Editor, FE Trustnet

Investors crave consistent outperformance from their active funds, but in reality, finding a fund that can outperform the market in every year is very unlikely as investment styles fall in and out of favour during a cycle.

On a medium term view, though, there are funds which have been able to beat their peers on a regular basis.

Therefore, with 2015 drawing to a close, FE Trustnet looks at the funds in the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors that look set (due to their market-beating returns in 2015 so far) to have outperformed their peers in each of the last five calendar years by the start of 2016.

It is also a very interesting time frame to analyse, given the falling market of 2011, the strongly rising markets of 2012 and 2013 and then the more turbulent conditions of 2014 and 2015.

Therefore, it will come as little surprise that there are only 15 out of a possible 409 funds which outperformed their peers in 2011, 2012, 2013, 2014 and are currently doing it so far in 2015.

Of course, a lot can change in a month, but here are the funds which are on track to outperform yet again.

 

IA UK All Companies

FE data shows 11 of those portfolios sit in the highly competitive IA UK All Companies sector and they can be spilt into different groups.

One of those is funds that focus on mid-caps – an area of the market which has thrived since January 2011 with the FTSE 250 up a hefty 70 per cent over that time compared to a 35 per cent return from the FTSE All Share.

Performance of indices since January 2011

 

Source: FE Analytics

However, the index did fall further than the wider market in 2011 during the European sovereign debt crisis so the mid-cap funds that have made it onto this list (Old Mutual UK Dynamic Equity, F&C UK Mid Cap and Neptune UK Mid Cap) are those which prioritise downside protection.

FE Alpha Manager Mark Martin’s five crown-rated Neptune fund, for example, has made money in each of the aforementioned calendar years meaning it has been top decile for its total returns, risk-adjusted returns and maximum drawdown despite its area of focus.

FE Alpha Manager Luke Kerr, unlike Martin (pictured), has the ability to short within his Old Mutual UK Dynamic Equity fund which has helped performance. In fact while all three mid-cap funds are up against the sector in the five calendar years, Old Mutual UK Dynamic Equity is the only one to have beaten its benchmark each time.

Another group of funds which look likely to achieve the feat are ethical funds with Premier Ethical, Royal London Sustainable Leaders Trust and EdenTree Amity UK all featuring.

One of the primary drivers of that trend is that, given their criteria and mandate, ethical funds have tended to avoid some of the UK’s worst performing sectors (which also make up a large chunk of the index) such as mining and oil.

The best relative performer out of the three has been FE Alpha Manager Mike Fox’s £454m Royal London Sustainable Leaders fund.

The five crown-rated portfolio was second quartile in 2011 and 2012 but was first quartile in 2013, 2014 and is doing so again in 2015. It has also beaten the FTSE All Share in each of those years except 2011.


 

Outside of mid-cap and ethical funds, the list of most consistent UK All Companies funds includes FE Alpha Manager Nick Train’s CF Lindsell Train UK Equity fund (which is on course for its ninth consecutive year of outperformance relative to the peer group) and Aviva UK Equity Manager of Manager – which is also part managed by Train.

The other funds to have made the list are GVQ UK Focus, Henderson Global Care UK Income and Threadneedle UK Extended Alpha.

 

IA UK Equity Income

While there are a handful of UK All Companies funds which look to set to complete five consecutive years of outperformance, only one portfolio from the IA UK Equity Income sector is ahead of the peer group average in 2015 after beating it in 2011, 2012, 2013, and 2014.

The portfolio in question is also a fund of funds – namely HL Multi Manager Income & Growth.

The five crown-rated fund, which is £1bn in size, has been managed by Lee Gardhouse since its launch in October 2002. While it has outperformed each of the past four calendar years and is doing so again with gains of 7.12 per cent, it has beaten its peers without really shooting the lights out.

Performance of fund versus sector and index

 

Source: FE Analytics

In fact, its average annual outperformance relative to the sector over the five calendar years has been 150 basis points.

Nevertheless, the fund has also beaten its FTSE All Share benchmark in each of those periods and, cumulatively, HL Multi Manager Income & Growth is sitting in the sector’s top quartile since January 2011 with returns of 63.45 per cent – putting it some 30 percentage points ahead of the index in the process.

The fund, which currently yields 3.83 per cent, has paid out £2,504 on an initial £10,000 made in January 2011 and has increased its pay-out in each of the last four years. Plus, with a few more payments yet to be calculated, Gardhouse looks likely to increase his dividend in 2015 as well.

HL Multi Manager Income & Growth’s dividend history

 

Source: FE Analytics *figures based on a £10,000 investment made in January 2011

His largest holdings include CF Woodford UK Equity Income, Artemis Income, JOHCM UK Equity Income and Marlborough Multi Cap Income.

 


 

IA UK Smaller Companies

The IA UK Smaller Companies sector is the smallest of the three peer groups with just 51 members, but three of its funds are on course to have outperformed in five calendar years on the bounce.

One of those is FE Alpha Manager Alex Wright’s five crown-rated Fidelity UK Smaller Companies fund, which is very value-orientated thanks to the manager’s contrarian style.

So far in 2015, the £313m fund is 1 percentage point ahead of its peers and if it can maintain that outperformance, it would mean Wright has beaten the sector average (and his Numis Smaller Companies ex IT benchmark) in every full calendar year since he launched the product in February 2008.

Performance of fund versus sector and index since launch

 

Source: FE Analytics

Fidelity UK Smaller Companies has been top quartile in four of those years, having posted second quartile numbers in 2011, 2014 and so far in 2015.

FE Alpha Manager Daniel NickolsOld Mutual UK Smaller Companies fund is another entrant to the list and (as well as its 15.66 per cent gains in 2015) has outperformed in each calendar year since 2010.

Interestingly, though, the fund hasn’t been top quartile in any of those years and even dropped into the third quartile in 2011 and 2013. Nevertheless, Nickols has beaten his peers in nine out of the last 10 calendar years (the exception being 2009’s rebounding market when it still made 39.24 per cent) and it has beaten its Numis Smaller Companies ex IT benchmark in eight of those.

The final fund on the list is five crown-rated AXA Framlington UK Smaller Companies portfolio, which was top quartile in 2011, 2013 and 2014, narrowly outperformed the sector in 2012 and is top quartile again in 2015.

AXA Framlington UK Smaller Companies differs slightly than the other Fidelity and Old Mutual offerings.

Firstly, it is benchmarked against the FTSE Small Cap ex IT index and therefore tends to hold companies with a smaller market-cap than the other two. Also, it has had two managers over the period in question with Henry Lowson taking over from Chris St John in May 2012.

Nevertheless, under Lowson, the fund £220m AXA Framlington fund is top decile and some 30 percentage points ahead of its benchmark with returns of 73.01 per cent.

 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.