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98 per cent of UK funds have made less money than your house in 2014

02 December 2014

A strong start to 2014 for the housing market and disappointing equity returns mean that 98 per cent of UK funds made less than property in the first 10 months of the year, according to an FE Trustnet study.

By Gary Jackson,

News Editor, FE Trustnet

Almost every fund in the three UK equity sectors could be on track to return less than the average home this year, according to research by FE Trustnet, as faltering stock markets fail to keep pace with the country’s property boom.

The UK housing market has been under close watch for most of the year, after rapidly rising prices in London and the south-east of England led to fears that the country was gripped by a property bubble.

In April, the International Monetary Fund warned that accelerating house prices were a significant risk to the UK’s economic recovery.

However, during recent months signs have emerged that the housing market is starting to cool off.

Bank of England data shows mortgage approvals have fallen for four consecutive months while house price growth has begun to slow down.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The housing market seems to be ending 2014 very much on the back foot.”

But despite this weakened performance in the second half of the year, house prices have still been stronger than equity markets. This is the first time this has happened since 2011.

From the start of the year to the end of October, the Halifax Property Index gained 7.17 per cent as the average house price in the UK has climbed to £186,135. The FTSE 100, meanwhile, was broadly flat by this point while the FTSE All Share was down 0.09 per cent.

It must be remembered that by the October equities had only just started to recover from the brutal six-week sell-off that started on 4 September.

However, as the graph below shows, they had lagged the property market before the correction began.

Performance of indices over 2014 to date

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Source: FE Analytics

What’s more, the average UK All Companies and UK Smaller Companies fund performed even worse with respective losses of 1.73 per cent and 4.18 per cent.

UK Equity Income funds managed to beat the indices with a 0.70 per cent gain over the period in question but were still behind the rise in house prices.

UK equities, and the funds that invest in them, have a strong record of beating house price gains. Last year, for example, the Halifax Property Index was up 6.38 per cent; the All Share gained 20.81 per cent.


The average UK All Companies fund returned 26.21 per cent, UK Equity Income funds were up 25.20 per cent and UK Smaller Companies portfolios surged 37.18 per cent.

The picture is much different this year, however.

Our data shows that 408 of the 415 funds in the three UK equity sectors - or 98.3 per cent of their members - were lagging house prices by the end of October.

Over recent years, UK funds have delivered much stronger returns that the housing market, with 401 beating the Halifax Property Index in 2013, 393 in 2012, 373 in 2010 and 350 in 2009.

Weaker years came in 2011, when only 77 UK portfolios outperformed house prices, and in the aftermath of the financial crisis in 2008 when only five funds were better than the index.

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Source: FE Analytics

Judith MacKenzie’s £8.5m PFS Downing Active Management fund, which sits in the IMA UK Smaller Companies sector, beat house prices by the widest margin with a return of 17.49 per cent up to the end of October.

Mark Slater’s MFM Slater Growth and MFM Slater Recovery funds also outperformed the index.

Some of the worst performance, on the other hand, came from the likes of SF Webb Capital Smaller Companies Growth, Baillie Gifford UK Equity Alpha and Aviva Investors UK Equity Manager Of Manager 2, all of which shed more than 15 per cent over the 10 months examined.

Of course, UK equities have recovered somewhat since the correction ended on 16 October while the housing market continues to show signs of slowing down.

Since the end of October, the average fund in the UK All Companies and UK Equity Income sectors have returned around 2.80 per cent while the typical UK Smaller Companies portfolio is ahead by 1.18 per cent.

Depending on what the Halifax index has done, these gains could mean more funds are now outperforming house prices.

UK funds have significantly outperformed house prices over the long term, as would be expected.

Over 10 years, the Halifax index is up only 15.38 per cent; the average UK Smaller Companies fund gained 152.54 per cent, UK All Companies’ 110.64 per cent and UK Equity Income 109.40 per cent.

Looking forward to 2015, experts believe that house prices will continue their upward ascent - although at a slower pace than has been seen over recent years.


Archer said: “With housing market activity appreciably off its early-2014 highs, we suspect house prices will generally rise at a much more sedate rate over the coming months compared to the peak double-digit annual growth rates seen earlier this year.”

“Specifically, we expect house prices to rise by around 5 per cent in 2015 after a likely modest overall increase in the fourth quarter of 2014.”

Equity investors, meanwhile, look to the last month of 2014 in hope that a ‘Santa rally’ will provide a last-minute boost to stock prices and lift the relatively lacklustre returns of the past year.

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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.