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Consistency or long-term outperformance: What do you want from your fund?

19 August 2014

FE Trustnet examines the relationship between the most consistent and the top-performing funds over the long-term.

By Alex Paget,

Senior Reporter, FE Trustnet

The absolute basic requirement of any fund is to deliver a return greater than its benchmark. That, of course, is what active managers are paid to do.

Passive enthusiasts will point to active funds’ inability to beat the market year-on-year, although FE Trustnet research suggests a number have delivered the goods on a consistent basis. Cynics will argue these are merely a victim of chance of course, though FE data suggests that the odds do seem to be in active managers’ favour.

According to FE Analytics, there are 106 funds in the IMA UK All Companies sector that are benchmarked against the FTSE All Share and have a track record spanning back to January 2004. Our data shows that 69 of those – or 65 per cent – have outperformed the index in six or more of the last 10 discrete calendar years. This figure doesn't include funds that have closed or merged over the period, however.

The most consistent of those has been the five crown-rated Majedie UK Equity fund, which has outperformed in nine calendar years; the exception came in 2010 when it underperformed the index by just 2 percentage points.

The worst performer on a consistent basis is the £5.4bn Halifax UK Growth fund. Despite its size, it hasn’t beaten its benchmark in any of the last 10 calendar years.

Performance of funds vs index between Jan 2004 and Jan 2014


Source: FE Analytics

It isn’t too surprising to see that the Halifax fund has considerably underperformed the index over that cumulative period and the Majedie fund has significantly outperformed.

However, as the table below shows, Majedie UK Equity has not been the best performing fund over the period.


Source: FE Analytics

The two best-performing funds have been Nick Kirrage and Kevin Murphy’s Schroder Recovery fund, which has outperformed in seven of the last 10 years, and FE Alpha Manager Julie Dean’s Schroder UK Opportunities fund, which has only outperformed in six.

Fidelity Special Situations, which has a long history of being run by managers with a value bias such as Anthony Bolton and Sanjeev Shah, has only outperformed in five of the last 10 calendar years, but it has beaten the index by 64.88 percentage points over the cumulative period, putting it ninth overall.

JOHCM UK Growth, Liontrust UK Growth and Jupiter UK Special Situations are among the other funds that have only outperformed in five of the last 10 years, but have still beaten the index over the full cumulative period.

Then there are the likes of Artemis UK Growth, Baillie Gifford UK Equity Alpha and Fidelity UK Select, which have outperformed the FTSE All Share over the long-term, but have underperformed the index in six of the last 10 years.

It works the other way as well.

According to FE Analytics, the GLG UK Income fund has underperformed the All Share by close to 30 percentage points between 2004 and 2013.

However, it only underperformed against the sector in 2007, 2008 and 2011.

Performance of fund vs index between Jan 2004 and Dec 2013


Source: FE Analytics

Ben Willis, head of research at Whitechurch, says that investing in a mix of consistent funds and those capable of stellar returns in a short- to medium-term burst is the key to building a top-performing portfolio.

ALT_TAG He says that the “holy grail” for any investor is to find a fund that can consistently outperform and deliver a very high return over the long-term.

However, he says those sorts of managers are very hard to find and therefore builds his portfolios in a different way by blending different strategies together.

He believes that the more consistent performers should make up the bulk of investors’ portfolios.

While some funds have a strong long-term record, it doesn’t necessarily mean than the investors who hold them have reaped all of the rewards.

The strong returns may be down to one or two years of significant outperformance, Willis says, meaning that if you weren’t invested at that time, you may have indeed been better off in a tracker.

He says it’s better to buy into high alpha funds like this at certain times of the cycle – usually after a period of underperformance.

“The starting point is always consistency,” Willis (pictured) said. “If you’re buying a fund to give you core exposure to a market, we want it to deliver consistent, steady, even boring, returns. We will then use satellite holdings, which we will dip in an out of, that can add value at certain stages during the cycle.”

Willis says among the best options in the “most consistent” category is Nigel Thomas’ AXA Framlington UK Select Opportunities fund.

Thomas’ fund has only underperformed in two of the last 10 calendar years – 2012 and 2007 – and only fell short by 2 percentage points in each of those years.

He says that he prefers to use Schroder Recovery as a satellite holding as its managers focus on “deep value” stocks and therefore tend to thrive in rising markets, even though they fall further than the market during times of stress.

“Obviously, the research shows that you can hold it for the long-term, but you have to be able to stomach the volatility,” Willis said.

While Schroder Recovery has outperformed the benchmark by close to 120 percentage points over the period, its maximum drawdown over that time has been 46 per cent, which is greater than that of the index.

However, in the bull markets of 2009 and 2013, the fund returned more than 40 per cent.


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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.