The £3.2bn Threadneedle UK Equity Income fund has been the most consistent outperformer in the IA UK All Companies and IA UK Equity Income sectors over the past decade, according to the latest FE Trustnet study, as it is the only active fund in the peer groups to have beaten the FTSE All Share in nine out of the last 10 calendar years.
Investors have seen a wide variety of market conditions since January 2006 such as one of the worst financial crises since 1929, a strong recovering bull market and then heaps of volatility in recent years.
There have also been market conditions which have and haven’t suited active managers. For example, in 2007 during the prelude to the global financial crisis, 75 per cent of UK funds underperformed the wider market. In 2015 though, when the index was battered by macro headwinds, 76 per cent of active funds outperformed the FTSE All Share.
However, active UK funds have, by and large, performed well over that full period.
While these figures do include survivorship bias as they only include funds that exist today, out of the 195 active funds in the two mainstream UK sectors (excluding mid-cap funds), 120 (or 61.53 per cent) beat the FTSE All Share between 2006 and 2015 on a cumulative basis.
Nevertheless, a number of those active funds have given investors a fairly rough ride so, in this article, we take a look at the funds which have delivered the most consistent outperformance relative to the index on a discrete 10 year view.
Again, it’s a relatively rosy picture, as more than 30 per cent of active funds have beaten the All Share in seven or more of the last 10 years. As the table below shows, though, only 15 have beaten it in eight or more of those calendar years.
Most consistent UK funds of the past 10 calendar years
Source: FE Analytics
It may come as a surprise that Richard Colwell’s Threadneedle UK Equity Income fund sits at the top of the list, given over the timeframe as a whole the portfolio lies 29th out of 195 funds. Its returns of 114 per cent were still close to double that of the FTSE All Share, though.
Nevertheless, Colwell’s differentiated approach (and FE Alpha Manager Leigh Harrison’s before him) has worked wonders over the past 10 years.
In fact, as the only year it underperformed was in 2009 (when it still returned 17 per cent having fallen significantly less than the index the year before), the fund has beaten its benchmark in each of the last six calendar years.
Performance of fund versus sector and index
Source: FE Analytics
A recent FE Trustnet article showed that it was the most popular UK equity income fund with multi managers and it is likely that so many professional investors use the portfolio due to its consistent track record which has led Threadneedle UK Equity Income to be top decile for both its maximum drawdown and risk-adjusted returns over the period in question.
Investors could be forgiven for thinking that Threadneedle UK Equity Income is relatively bog-standard core portfolio, but Charles Younes – research manager at FE Research – says there is far more going on under the bonnet of the portfolio than many given Colwell credit for.
The fund, which currently yields 4.2 per cent, features on the FE Invest Approved List as a result. 
“Colwell’s approach to equity income investing is unusual, and differentiates this fund from peers,” Younes (pictured) said.
“The focus on medium to long term dividend growth in areas overlooked by the market has paid off, generating the required level of income with a capital growth kicker alongside. However, investors must be aware that this contrarian style of investing often involves buying more of poorly performing companies, providing the managers’ investment case still holds; therefore some of the fund’s holdings can often be suffering uncomfortably negative news flows.”
For example, the manager counts the likes of Marks & Spencers, Morrisons and Centrica in his top 10.
An FE Trustnet study conducted last year showed that Columbia Threadneedle had the highest proportion of outperforming funds on a 10 year view – and that is again reflected in today’s research.
FE data shows, for example, that out of the 14 funds which have beaten the FTSE All Share in eight of the last 10 calendar years, five of them are run by the group – Threadneedle UK Extended Alpha, Threadneedle UK Monthly Income, Threadneedle UK Overseas Earnings and Threadneedle UK Select.
Elsewhere, again in an article last year we found that the five crown-rated Majedie UK Focus fund had been the most consistent in the UK as between 2005 and 2014, it had only underperformed in one calendar year.
However, over the last 10 years, it has now underperformed in two of them due to its flat 0.2 per cent performance in 2015.
The reason that both the group’s UK Focus (which is a best ideas portfolio) and flagship UK Equity fund struggled last year was due to their high weighting to banks and oil companies, both of which had a difficult time either due to regulatory concerns or falling commodity prices.
Performance of funds versus index in 2015
Source: FE Analytics
When you look at the list of funds which have outperformed in eight of the last 10 years, there are a number of household names that investors will be familiar with.
These include the likes of Liontrust Macro Equity Income, which is co-run by the FE Alpha Manager ‘hall of famer’ duo Jan Luthman and Stephen Bailey, Matt Hudson’s Schroder UK Alpha Income as well as Martin Cholwill’s Royal London UK Equity Income fund.
The latter, which is £1.8bn in size, has now outperformed in each of the last six calendar years thanks to its gains of 4.8 per cent in 2015.
However, there are certain funds that have achieved eight years of relative outperformance but are relatively unknown within the context of this industry.
For example, the likes of M&G UK Select, Aviva UK Equity, Aviva UK Opportunities and SVM UK Growth have all made the list but have combined assets of just £1.3bn despite their track records (and £723m of that comes from the M&G fund).
The performance of FE Alpha Manager Margaret Lawson’s £140m SVM UK Growth fund is particularly noteworthy given it is the only genuine lower-cap fund to feature on the list.
As such, it has arguably faced a more challenging environment over the last 10 calendar years as while small and mid-caps have considerably outperformed large-caps from a cumulative point of view, there were four markets where they underperformed: 2007, 2008, 2011 and 2014.
Nevertheless, SVM UK Growth dodged the worst that 2007 and 2008 had to offer for smaller companies.
Therefore, during the period as a whole, Lawson’s portfolio ranks fifth out of the 195 funds in the study with gains of 181 per cent meaning it has tripled the gains of the wider UK market over that time.
Performance of fund versus sector and index between 2006 and 2015
Source: FE Analytics
Turning the study on its head now and there have been certain active UK funds which have consistently struggled to beat their benchmarks.
The worst performers from that point of view have been Scottish Widows UK Growth, Halifax UK Growth and Halifax Special Situations which have all underperformed in nine of the last 10 calendar years.
It therefore comes as no surprise that all three are way down against the index over the period as a whole and are among the seven worst performers of the funds included in the study.
Interestingly, though, it seems that consistency of returns hasn’t necessarily been the key to long-term outperformance in the UK sectors.
Best performing UK funds over 10yrs
Source: FE Analytics
For example, while Majedie UK Focus, SVM UK Growth, MFM Slater Growth and Edentree UK Equity Growth were among the top 10 best performing funds in the two sectors over the period in question and outperformed the index in at seven of the last 10 years, L&G UK Alpha was the sixth best performer but only beat its benchmark in four years.
