Investors looking for long term growth in the UK equity market should be keeping a close eye on Schroder UK Alpha Plus
, according to The Share Centre's Andy Parsons.
The fund passed its tenth birthday in June of this year, and has made 176.78 per cent since launch, more than double the 82.78 per cent of the average fund in the sector.
) says that manager Richard Buxton
, who has managed the fund for the duration of its life, has proved the value of his high conviction style in that time. Even though the fund has had a tougher time of it in the short-term – it's marginally down against its FTSE All Share benchmark over a three year period – the head of investment reseach at the firm believes this is an ideal long-term play.
“With a process focused on high conviction stock ideas, the fund has stood the test of time through strong and weak markets. It may have sometimes underperformed its benchmark index, however it has clearly outperformed both its sector and benchmark over the past ten years,” he said.
“Although growth in the UK remains sluggish, the manager believes he can still find attractive companies, with good valuations and growth opportunities, which should make investors’ money over the longer term. Buxton is happy to wait years for his convictions to pay off,” he added.
Patrick Connolly, head of communications at AWD Chase De Vere, agrees with Parson’s positive assessment, saying that he holds this fund in client portfolios.
He said: “What must be said is that the fund is fairly focused with a small number of assets in its portfolio, so the success or failure of the fund all rests on Richard Buxton and the teams stock picking capabilities.”
“However, Richard Buxton has proved over a long period that he is a more than capable fund manager.”
According to FE Analytics
data, Buxton’s Schroder UK Alpha Plus boasts top quartile performances over five and ten year periods. Whilst its performances have dropped compared to its competitors in its sector over the medium term, the fund is back in the top quartile over three and six month periods.
The fund has beaten its IMA UK All Companies sector and its FTSE All Share benchmark over one, five and 10 year periods, and the is a top-quartile performer over the last decade.
Performance of fund versus sector and benchmark
Source: FE Analytics
However, it' been significantly more volatile than both its sector and index, and has lost more during down markets. According to FE data, the fund has an annualised volatility of 18.72 per cent over the last decade, compared to 14.93 per cent from the average UK All Companies portfolio, and 14.44 per cent from the All Share. It significantly underperformed in both 2008 and 2011.
Schroder UK Alpha Plus has a large exposure to the generally unpopular financials sector, holding 17.7 per cent in the industry.
Parsons says this position reflects a contrarian conviction of the manager.
“Buxton firmly believes he can make money from the financial sector over the longer term by investing in UK banks. He believes this is due to the changes made since the banking crisis in 2008 that have made them stronger,” he said.
According to FE Analytics data, the fund has a total of only 37 holdings in its portfolio.
Connolly believes that investors should understand the implications of this concentration, which means the fund must be viewed as a long term holding.
“The focused portfolio means there will be periods where the fund outperforms then underperforms. So investors will think that at one stage I am in a really good fund, and then next minute will think why am I not making any money?”
“Investors will have to take the rough with the smooth in that respect,” he said.
“Also, because of the small amount of stocks picked, they hedge some pretty strong bets. This is shown as they have exposure to super cyclical commodities and banks. These could come good in the long term, but there is undoubtedly going to periods of underperformance,” he finished.
Buxton, who also heads the close-ended Schroder UK Growth
trust, has a good performance record over his lengthy track record in asset management.
Over a 10 year period, the manager has beaten his peer group composite with returns of 161.45 per cent compared to his peer group cpmposite, which has returned 130.67 over the same period.
Performance of manager versus peer group composite over 10yrs
Source: FE Analytics
The £2.9bn Schroder UK Alpha Plus
has a minimum investment of £1,000 and a total expense ratio (TER) of 1.66 per cent.