Investors miss out on top-performing funds
Boutique houses with small marketing budgets have failed to draw in vast amounts of money, in spite of their stellar performance.
By Joshua Ausden, News Editor, FE Trustnet
Tuesday April 17, 2012
A significant proportion of the best-performing equity funds over three and five years are being ignored by UK investors, the latest FE Trustnet
study has revealed.
The likes of MFM Slater Growth
, Unicorn UK Income, Close Special Situations and McInroy & Wood Smaller Companies all top their respective sectors over at least three and five years, but none have more than £60m in assets under management (AUM).
Performance of funds vs sectors over 5-yrs
Source: FE Analytics
All four of these funds have five FE crowns and are headed up by an FE Alpha Manager.
Mark Slater’s MFM Slater Growth
portfolio is the best-performing fund in the entire unit trust and OEIC universe over a three-year period, with returns exceeding 171 per cent. Slater is also number-one in his UK Equity Income sector over a five-year period.
However, in spite of his sustained outperformance, the fund is relatively small for a UK All Companies portfolio – especially compared with the likes of Fidelity Special Situations
and M&G Recovery
, which have AUM of £2.4bn and £8.1bn respectively.
John McClure’s £40.4m Unicorn UK Income
fund is the best performer in its highly competitive UK Equity Income portfolio over three and five years, with returns of 108.52 and 28.04 per cent respectively. While the fund has more of a small and mid cap focus than the majority of its competitors, it is only marginally more volatile than its FTSE All Share benchmark.
Performance of fund vs sector and benchmark over 3-yrs
Source: FE Analytics
With a one-year historic yield of 4.54 per cent, it is also yielding more than the average UK Equity Income fund.
Tim Wood’s McInroy & Wood Smaller Companies fund has the most established track record of the four, but this has done little to stimulate inflows.
According to FE data, the fund is second only to M&G Global Basics
in its IMA Global sector over a 10-year period, with returns of 198.82 per cent. Wood’s small cap focus has contributed a great deal to the fund’s outperformance, and it also has the highest Alpha ratio of any Global fund over the period.
Darius McDermott, managing director of Chelsea Financial Services, believes there are various reasons why these top-performing funds fail to get the inflows that they deserve.
"Performance is obviously important, but it also comes down to marketing budgets, which is why we’ve seen something like M&G Global Dividend
grow from £80m to £2.5bn in a matter of months," he explained.
"It is also about the ability to get onto platforms. MFM Slater Growth is one that has made it onto our platform, for example, but at the moment it is not on our recommended list."
McDermott also pointed to the unwillingness of some providers to invest in small funds.
"If I’m a big pension provider, I’m not going to invest in a £30m portfolio because if I want to invest £10m of my clients’ money I’d end up owning a quarter of the fund," he explained. "I’m more likely to wait until the fund is £100m."
"Once these funds reach that threshold, perhaps you’ll see assets increase quite steeply."
"That said, sometimes there seems to be no real explanation; I find myself looking at a fund like Rathbone Global Opportunities and wonder why on earth it has only got £150m or so assets under management – especially since Rathbones have such a strong distribution channel," he added.
Rathbone Global Opportunities
is another five crown-rated fund with an FE Alpha Manager at the helm. James Thomson’s
portfolio, which has £163m AUM, was recently highlighted as one of only five funds that are top-quartile performers
in their IMA Global sector over one, three, five and 10 years.