The past 10 months of stock market volatility has increasingly been referred in the same breath, in certain parts of the media, to the financial crisis of 2007-9 when core markets such as the FTSE 100 fell nearly 50 per cent between peak and trough.
Back then, this tested the mettle of nearly every fund manager operating at the time - more so than any other period - with investors very bearish over an 18 month period.
Performance of index during financial crisis
Source: FE Analytics
Since the bounce back in 2009 there are a number of equity managers who, having rewarded their long term investors with outsized returns, have built up a strong reputation for outperformance.
However, until recently, the macro background in whihc they have been running money was largely supportive to a recovery in UK equities.
Therefore, through no fault of their own, certain younger managers have faced criticism (of sorts) due to the fact they haven’t faced a messy bear market. However, markets have been selling off since April 2015 and entered a bear market ‘officially’ in 2016. Therefore, managers have once again faced a very challenging backdrop.
The manager of the Neptune UK Mid Cap fund – Mark Martin - and the manager of the Old Mutual UK Dynamic Equity fund – Luke Kerr – who both took charge just before/after the trough of March 2009 have both clocked up very strong track records since.
Martin has outperformed the FTSE 250 ex IT index every discrete calendar year bar two since 2009. Kerr has similarly done well, as he only underperformed the index by less than half a percentage point in 2012.
They are, respectively, number one and two in the 270-strong IA UK All Companies sector over five years, top decile over three years and top quartile over one year from the point of view of total return. Over five years, Neptune UK Mid Cap is also top quartile for volatility and maximum drawdown but Old Mutual UK Dynamic Equity is bottom quartile for both metrics.
However, both Martin and Kerr have also outperformed since the FTSE’s peak in April 2015 although Martin’s more recent performance has been slightly behind the index. It must be, noted, however, that mid-caps (where both managers are primarily invested) have outperformed the wider UK equity market over that.
Performance of funds, sector and index since April 27 2015
Source: FE Analytics
Thomas Moore (pictured), who has headed the £1.1bn Standard Life Investments UK Equity Income Unconstrained fund since 2009, has also done very well in his ‘benchmark agnostic’ portfolio.
Standard Life Investments UK Equity Income Unconstrained is top decile over three and five years more than quadrupling the FTSE All Share’s gain over the former and tripling it over the latter.
Despite rating the manager highly, Square Mile Research note that Moore has been at the helm he has not yet experienced a period of extreme market stress, such as in 2008.
“Whilst the income requirements may help to provide some protection in an aggressive sell-off, for dividend paying companies tend to be, broadly speaking, more mature and stable, the fund may underperform due to the aggressive nature of the strategy and if the research output is directing Moore into parts of the market that can quickly fall out of favour.”
“Although he may not have as much experience as some of his more well-known UK equity income contemporaries, Mr Moore appears passionate about this strategy and keen to validate both SLI''s research process and his own abilities.”
Mark Dampier, head of research at Hargreaves Lansdown, says ideally it is good to pick a manager that has demonstrated acumen in crisis such as 2008 but thinks all those mentioned so afar have shown skill of handling the downside in the past 6 or so years.
“Broadly speaking, we would like to see at least a seven year track record, but the last five years have hardly been easy for anybody. The market may well have gone up but it is had big corrections along the way,” he said.
“The problems stems when you have only a have couple of or at least three years record. Three years isn't really long enough. Most fund managers have their moment in the sun but you want to make sure 'that's not it’.”
“However, a lot of times that does become so. That is a problem of younger fund managers but all these - Kerr, Martin, Moore etc - should as long they stick to their plan.”
In particular, he says Moore has shown he can work well, when times are tough for equities, but that all will have gathered experience from their early days managing a portfolio in 2009.
“I have a lot of time for Thomas Moore because he took over the fund after it had had a disastrous start and has gone on to do pretty well. They all went through baptism of fire anyway. You have been pretty tested over the past few years and given he state of the market in the last six or seven months you have been tested again.”
“Also it has been a tough time over the past few years and a lot of the older more experienced managers have not had a good time. If you have been doing it 20 years then you are less likely to pack it in [in a crisis such as 2008] because there is a lot of pressure on these people.”
However, this period has been trickier for other young managers whose longer term track records are strong.
Jacob de Tusch-Lec, manager of the £2.89bn Artemis Global Income, has strongly outperformed since launching the popular portfolio in 2010.
The fund has made an 86.15 per cent total return, ranking it first in the IA Global Equity Income sector where the average return has been 53.09 per cent. It has also outperformed its MSCI AC World index benchmark by a very similar margin due to its gain of 53.08 per cent.
He previously managed another fund between 2006 and 2010, the Artemis UK Capital fund which did badly in 2008 as the manager lost more than 10 percentage points more than the FTSE All Share.
In the last 10 months of falling markets the fund is now behind both sector and benchmark.
Stephen Message, manager of the Old Mutual UK Equity Income, has a good long-term record of outperformance relative to his peers (he took over the fund in December 2009) – but since April 2015 he has been bottom quartile. However, it should be noted he is still just ahead of the index.
Performance of funds, sectors and indices since April 27 2015
Source: FE Analytics