Funds headed by star names such as Neil Woodford, Terry Smith and Jacob de Tusch-Lec are among those to capture inflows that boosted their assets under management by at least one-third in 2015, before they were further swelled by performance, research by FE Trustnet shows.
As few investors could have failed to notice, last year was a turbulent one for markets with many indices reaching record highs thanks to European quantitative easing and the re-election of Japanese prime minister Shinzo Abe before tanking from the summer onwards on the back of plunging commodity prices and weaker growth in China.
Performance of indices in 2015
Source: FE Analytics
Despite the market falls and uncertain outlook, the year ended up being a relatively good one from a fund inflows point of view. Data from the Investment Association shows net retail sales amounted to £18bn in 2015, which pushed total funds under management up to a record high of £871bn.
With this in mind, FE Trustnet looked across the Investment Association to see which already-large funds grew even bigger across the course of the year. To do this, we focused on funds that went into 2015 with assets in excess of £1bn and took at least one-third of their starting AUM over the year, as well has enjoying a period of positive returns.
The fund that saw the biggest jump in assets relative to the start of the year was CF Woodford Equity Income, which is run by FE Alpha Manager Neil Woodford and has enjoyed a steady run of high inflows since its launch in June 2014.
Our data suggests the fund, which started 2015 with assets of £4.3bn, took in another £3.3bn of investor money across the year (equivalent to 76.5 per cent of its starting AUM) – making it the driving reason why IA UK Equity Income was the best-selling sector in the Investment Association universe.
These inflows, combined with impressive returns (the fund was up 15.90 per cent in 2015, while its average peer made 6.20 per cent and the FTSE All Share posted a total return of just 0.98 per cent), means CF Woodford Equity Income’s assets reached £8.3bn by the end of the year.
Performance of fund vs sector and index over 2015
Source: FE Analytics
Although 2015 was a difficult one for risk assets, one of the reasons why the fund continued to attract money could be down to the approach that has been developed by Woodford over more than 25 years, which focuses on value investing and downside protection.
“Mr Woodford's investment approach has been honed over many years and through multiple market cycles. He is a contrarian and long-term investor by nature, believing that the market is inherently inefficient. Essentially the team focus on discovering the true value of a firm based on an estimation of its future earnings and cash flow, and look to benefit when this value is at odds with its market price,” Square Mile said.
“Although Mr Woodford is looking to produce a positive total return for investors over time, the team place an equal weight on capital preservation, with their strict valuation discipline and investment approach naturally underpinning this.”
CF Woodford Equity Income has a clean ongoing charges figure (OCF) of 0.745 per cent and yields 3.51 per cent.
Next up is Jacob de Tusch-Lec’s Artemis Global Income fund, where net inflows of £1.2bn were equivalent to 69.8 per cent of the assets the portfolio started the year with. By the end of 2015 de Tusch-Lec was running £2.9bn in the fund, up from £1.7bn at the start.
As the graph below shows, this is another portfolio that has attracted investors through a strong track record. Since launch in July 2010, it made the sector’s highest total return at 89.18 per cent; its average peer is up 54.91 per cent while its MSCI AC World benchmark has risen 54.34 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
The four FE Crown-rated fund is a favourite with investment analysts and holds a spot on the FE Invest Approved list, where it is highlighted for the strong stock selection that has driven its gains and a focus on valuation, which prevents investors from overpaying for dividends.
In a recent update, de Tusch-Lec explained that he has been tilting his portfolio towards companies that have a prospect of strong dividend growth rather than the ‘cash cows’ that show high yields at the moment, due to concerns about dividend cuts from the market’s biggest payers.
“Over the past six months, we have moved more of the fund towards the dividend growers. We want to have more dividend growth in the portfolio because if companies have to pay more for their capital [due to rising interest rates], then the very levered ones will not be able to grow their dividends,” he said.
“With the greater pressure on dividends, we’ve put more of a focus on growth. I think if you bought our portfolio today and held it for a year, the underlying dividend growth would be around 8 or 9 per cent.”
Artemis Global Income has a 0.84 per cent clean OCF and yields 3.93 per cent.
Moving outside of equities for a moment and Henderson UK Property’s inflows were equivalent to 47.8 per cent of its AUM at the start of 2015, taking in another £1.3bn. There is now £4.2bn in the fund.
Over Marcus Langlands Pearse and Ainslie McLennan’s time in charge of the fund it has made a 68.39 per cent total return and outperformed the average UK direct property fund by 10 percentage points in the process.
Performance of fund vs sector under Langlands Pearse and McLennan
Source: FE Analytics
Property funds have been popular with investors over recent years after the hunt for yield continued and assets outside of equities and bonds become more in demand. Henderson UK Property, as one of the best rated funds in the IA Property sector, was one of the key beneficiaries of this renewed interest.
Assets under management were also bolstered by the merger of the £470m Old Mutual Property fund into the portfolio in January 2015. The Old Mutual fund owned 24 properties, which McLennan said offered “a good fit” when her portfolio’s holdings.
The fund has a focus on prime properties and therefore tends to run a high allocation to London and the southeast of the UK. It top tenant by income is Royal Bank of Scotland, followed by B&Q, Sainsbury's, Tesco and the London Fire and Emergency Planning Authority.
Henderson UK Property has a clean OCF of 0.84 per cent and is yielding 3.10 per cent.
The final fund on the list is another that will be familiar to many investors – FE Alpha Manager Terry Smith’s Fundsmith Equity, which our data shows took in just over £1bn over 2015. This is equivalent to 33.8 per cent of the £3bn it started the year with and contributed to it growing to £4.6bn.
Performance of fund vs sector and index since launch
Source: FE Analytics
Since launch in November 2010 the five FE Crown-rated fund has made a 123.35 per cent total return. This makes it the best performer in the IA Global sector and is well ahead of the rise in its MSCI World benchmark, as shown in the above graph.
Smith builds his concentrated portfolio from high quality businesses that can sustain a high return on operating capital employed, whose advantages are difficult to replicate, that are resilient to change and are trading on valuations he considers to be attractive. Top holdings include Microsoft, Imperial Tobacco and Johnson & Johnson.
The manager’s strict criteria means he considers his investment universe to include only 68 stocks, with most of these being sectors such as consumer staples, manufacturers or medical device producers. He avoids more economically sensitive areas like airlines, banks and real estate.
Fundsmith Equity has a clean OCF of 0.99 per cent.
