The £3.1bn Majedie UK Equity fund has overtaken Old Mutual UK Alpha as the most held UK growth fund among fund of funds managers, according to the latest FE Trustnet study, which also shows an increased use of UK trackers among professional investors over the past 12 months. 
According to FE Analytics, some 37 multi-manager funds count Majedie UK Equity – which is co-managed by Chris Field, James de Uphaugh, Matthew Smith and Richard Staveley – as a top 10 holding.
The three crown-rated fund was the second most popular portfolio in this same study last year, as Richard Buxton’s Old Mutual UK Alpha fund held top spot. However, following a tough year, the £2.4bn value-orientated fund has fallen to fifth place overall.
While an active fund is the most popular with fund of funds managers, an interesting trend has developed over recent years as it seems professional investors are increasingly turning to passively managed portfolios for their UK exposure.
In fact, trackers now occupy second and third place in the list of most widely held UK growth funds with the number of those who hold them having increased gradually in each of the last four years.
Most popular UK growth funds with managers
Source: FE Analytics
While Majedie UK Equity is still the most popular fund in the space, our data shows the number of fund managers who count the portfolio as a top 10 holding has dropped from 40 this time last year.
Nevertheless, the fund has some notable backers.
FE data shows the 37 funds that count it as a top 10 holding include the likes of Schroder MM UK Growth, Henderson Multi Manager Managed, three Hargreaves Lansdown portfolios and four offerings from Bambos Hambi’s Standard Life Investments MyFolio range.
The team at Majedie Asset Management is commonly viewed as one of the best at UK equity investing and the flagship fund certainly has an enviable track record.
Since its launch in March 2003, it has been a top quartile performer in the competitive sector with gains of 324.69 per cent meaning it has beaten the FTSE All Share by more than 140 percentage points in the process.
However, it is the consistency of those returns which is the more impressive as the fund has outperformed its benchmark in 10 out of the last 12 calendar years.
Performance of fund versus sector and index since launch
Source: FE Analytics
As a result, it comes as little surprise Majedie UK Equity sits in the top decile for its maximum drawdown, alpha generation relative to its benchmark, annualised volatility and risk-adjusted returns (as measured by its Sharpe ratio) since launch.
Interestingly, however, one of the two years the fund did underperform was 2015 as it lost 1 per cent largely as a result of its oil stocks.
Old Mutual UK Alpha was another UK growth fund that had a tough 2015, which may well account for its drop from first to fifth of the most widely held portfolios within the space among multi-managers.
When we conducted this study last year, 42 counted it as a top 10 holding. Today, that figure stands at just 17.
Buxton has admitted that there were a number of stock-specific disappointments last year, but his large-cap value bias was the major source of his fund’s bottom decile losses as the market tended to favour domestically focused mid and small-caps.
Of course, the fact the fund lost money in 2015 could mean that few have sold Old Mutual UK Alpha and, instead, watch it fall out of their list of top 10 holdings as other positions have done better.
However, many may have wanted to switch out of the strategy to look for alternatives and FE data suggests that the preferred destination has been trackers.
According to the study, BlackRock UK Equity Tracker and Vanguard FTSE U.K. All Share Index are now the second and third most popular UK growth funds with multi-managers as they feature in 33 and 26 top 10s, respectively.
That is an increase from 25 top 10s for the BlackRock fund and 20 top 10s for the Vanguard offering last year, while in this same study in 2014 just 18 held Vanguard FTSE U.K. All Share Index and less than 12 owned BlackRock UK Equity Tracker in their top 10.
On top of that, a third UK tracker features on the list this year in the form of Scottish Widows UK All Share Tracker, which is now the 10th most held UK growth fund with 12 top 10s.
Both the BlackRock and Vanguard funds have been extremely efficient at mimicking the index over the past five years, with both delivering a tracking difference of just 57 basis points. The Vanguard fund, which has a FE Passive Fund Rating of five, has had the better tracking error of just 0.4 but the £8.1bn BlackRock fund is the cheapest with an ongoing charges of 0.06 per cent.
Performance of funds versus index over 5yrs
Source: FE Analytics
There is no clear reason behind this trend, but many fund managers may have looked to reduce their often double fees by opting for passives over active portfolios.
Another potential reason, which is more tactical, revolves around the make-up of the index.
FE data showed that due to the huge falls in sectors such as mining, oil and banks (which make up a significant chunk of the FTSE All Share) the average active manager in the UK had a decent year by simply avoiding those bombed-out areas.
By taking larger positions in rallying mid and small-caps, some 76 per cent of active managers in the IA UK All Companies and IA UK Equity Income sector beat the FTSE All Share in 2015.
Several market commentators have said that the negative sentiment towards internationally-facing mega-caps may have gone too far, however, and therefore 2016 could well be a good year for the index and by extension active managers will struggle to keep up given their consensual positioning.
These include the likes of Psigma’s Rory McPherson, who has moved his clients into trackers rather than buying actively managed value funds.
“The UK market is at more attractive valuation as there are more parts of the index which are more geared towards global growth such as resources and banks. We expect that market to do better this year and earnings to bounce back,” McPherson said.
“What is interesting there is that we have pushed investors out of active funds, which is generally where we like to go, and into passive products because it has been a very easy ride for active managers in the UK as mid-caps have done very well.”
“In the UK, being passive gets you into cheap stuff without paying the fees of an active value manager. In fact, you are seeing value manager drifting into those stocks, so our view is, why pay the fee?”
It’s not all bad news or active managers, though, as certain members of the peer group have seen a significant increase popularity.
An example is FE Alpha Manager Alex Savvides’ JOHCM UK Dynamic fund which sits fourth on the list with 18 top 10s when, last year, it didn’t even feature.
Those that hold the special situations-type fund, which has considerably outperformed since its launch in May 2008, include Aberdeen Multi Manager Balanced Managed, Fidelity Multi Asset Open Strategic and the five-crown rated Standard Life Investments MyFolio Multi Manager IV fund.
Performance of fund versus sector and index since launch
Source: FE Analytics
All the other active funds in this study yet to be mentioned, except for FE Alpha Manager John Wood’s JOHCM UK Opportunities portfolio, have seen the number of multi-managers that hold them in their top 10 increase.
These include Standard Life Investments UK Equity Unconstrained, CF Lindsell Train UK Equity and Liontrust Special Situations.
One fund that has seen a significant fall in its popularity, though, is AXA Framlington UK Select Opportunities, which is managed by industry stalwart Nigel Thomas.
In early 2013, it was the second most widely held portfolio in this space with 41 top 10s and in 2014 it sat at the top of the table with 37 top 10s. Last year, though, it dropped to 10th place as just 12 fund of funds held it in their top 10 and now just eight have significant positions in the portfolio, meaning it ranks 15th overall.
