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The hardest hit UK funds during Q1 2016’s tumultuous conditions

04 April 2016

FE Trustnet reveals the UK equity funds hit hardest in the first quarter of 2016 amid the worst start to the year markets have ever recorded.

By Daniel Lanyon,

Senior reporter, FE Trustnet

Less than one in four UK equity funds have outperformed the FTSE All Share index in 2016 so far, according to research by FE Trustnet, following the bearish sell off and tentative recovery seen in the first three months of the year.

Just 23.8 per cent of the 402 funds that make up the three UK equity sectors in the Investment Association universe - the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies – are ahead of the index at the end of the first quarter of the year.

According to FE Analytics, of the average fund in each of the three sectors have all underperformed the index over this time period by a least one percentage point with the IA UK Smaller Companies sector the worst performer and the IA UK Equity Income sector the best.

Performance of sector and index over 1yr

   

Source: FE Analytics

The hardest hit fund overall is the £31m MFM Slater Recovery fund headed by FE Alpha Manager Mark Slater followed by Jupiter UK Growth which have lost 9.00 and 8.57 per cent, respectively.

Both funds sit in the IA UK All Companies sector, and over the longer term have fared much better with the latter top quartile and the former top quartile over three years.  MFM Slater Recovery which is mid cap focused is also top decile over one year.

Slater also tends to favour mid-caps but has multi-cap approach and will own small caps and some large caps. His current top ten includes the likes of Hutchison China Meditech, Restore, Bellway and Walt Disney.

In February his holding in heating services firm Lakehouse was the biggest detractor wiping off 1.02 percentage points off the performance of the fund.

His five biggest contributors to performance cumulatively only added 0.81 of a percentage point in what was a tough month for the portfolio.

Slater’s other two funds, MFM Slater Growth and MFM Slater Income also sit in the bottom 10 per cent of funds across the three sectors since the start of the year.


The £1.57bn Jupiter UK Growth fund – which is managed by Steve Davies – predominantly holds for large stocks. Currently it has 63.2 per cent in such stocks with the rest in mid and small caps.

The manager focuses on two types of stock: those showing strong future growth potential and those where the share price is under pressure but recovery potential can be seen. His largest holdings include Lloyds, L&G and Barclays.

Over Davies’ tenure, the three crown-rated fund has provided a total return of 39 per cent, almost doubling the performance of its FTSE All Share benchmark and outperforming its peer average in the IA UK All Companies sector by 18.23 percentage points.

Performance of fund vs sector and benchmark over management tenure

 

Source: FE Analytics

The table below, which shows the ten worst UK equity funds across the three sectors, includes some other notable funds including Mark Costar’s JOHCM UK Growth, Jeremy Lang’s Ardevora UK Equity, Rupert Fleming’s Smith & Williamson UK Equity Growth, Ed Leggett’ Artemis UK Select. All but Leggett are FE Alpha Managers.



Source: FE Analytics

FE Alpha Manager Harry Nimmo’s Standard Life Investments UK Opportunities is close by with a 6.1 per cent loss year to date.


Of course three months is a short time period, and it is prescient that all but two of the ten worst funds in 2016 so far, beat the index last year with five of these top quartile out of all 402 funds across the three sectors.

The 10 per cent of worst performing funds in the sector in 2016 includes seven from the IA UK Smaller Companies sector and five from the IA UK Equity Income sector with other 29 coming from the IA UK All Companies sector.

Many of those in the latter sector tend to be either mid cap or value focused.  Also, most funds in these three sectors – bar trackers and passives – where underweight mining at the start of the year as this part of the market has been heavily out of favour.

However, it has been one of the best places to invest since the start of the year with the FTSE All Share Mining index up 24.83 per cent compared to a flat performance from the wider market.

Performance of indices in 2016



 Source: FE Analytics

Indeed Davies told FE Trustnet that he had no plans to buy any miners at the end of 2015 despite the attractive valuations as their businesses looked in too precarious a shape with the danger of dividend cuts looming.

“I’m struggling to see how commodity prices move up substantially from here,” Davies said.

“That seems like a pretty dangerous assumption – they could indeed go lower. We haven’t really seen enough distress to get us excited about them as recovery opportunities. Never say never; we keep doing the work on them but we’re still zero weighted in commodities.”

Chris Beauchamp, senior market analyst at IG, says it has been an unusual three months and mining’s gains may not last.

“Q1 was dominated by wild swings in investor optimism and pessimism, plus a wild ride in the likes of mining stocks that had been heavily shorted. What needs to be seen now is a steady flow into equity funds and a rotation into growth stocks, rather than just some brave contrarian plays.”

 

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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.