Skip to the content

The top-performing UK funds that have dodged the worst of the FTSE’s volatility

05 May 2016

Research by FE Trustnet shows that 12 funds from the IA UK All Companies sector are topping their sector for total returns over three and five years, but have done so with some of the lowest volatility of the sector.

By Gary Jackson,

Editor, FE Trustnet

Mark Barnett’s flagship Invesco Perpetual Income funds, Premier ConBrio Sanford Deland UK Buffettology and Liontrust Special Situations are among the funds that have produced some of the IA UK All Companies sector’s highest returns over recent years while keeping volatility below that of the market, according to research by FE Trustnet.

As investors will have no doubt noticed, recent years have seen increased volatility due to concerns such as the timing of interest rate rises, geo-political tension in several parts of the world, signs of slowing global economic growth, plunging commodity prices and, more recently, the surprise devaluation of the Chinese renminbi.

This has led to a torrid time in markets over the last few years. While 2012 and 2013 were marked by strong bull runs on the back of quantitative easing and ultra-low interest rates from central banks, 2014 and 2015 were more challenging and saw risk assets struggle to make ground with some posting losses.

Over the past five years, the FTSE All Share has made a 28.60 per cent total return while the average fund in the IA UK All Companies sector has outperformed with a 34.72 per cent gain. However, much of this came in the earlier years – the index has risen 9.61 per cent over three years and is down 6.72 per cent on a 12-month view.

With this in mind, we filtered down the IA UK All Companies sector to find the funds that are sitting in the top quartile over the challenging last three years and the more balanced past five years, as well as being in the top 25 per cent of their peers when it comes to annualised volatility.

Out of the 269 members in the peer group, we were left with just 12 funds – which can be seen in the table below.

 

Source: FE Analytics

As can be seen, it’s FE Alpha Manager Mark Martin’s £608.6m Neptune UK Mid Cap that leads the pack from a returns point of view after making investors 116.99 per cent over the past five years. This is not too much of a shock, given that the FTSE 250’s 65.40 per cent is more than double the gain in the FTSE 100.

What may be more surprising is that the fund sits in the IA UK All Companies sector’s top quartile for annualised volatility (it has also been less volatile than the FTSE All Share) as mid-caps are generally thought of as being a riskier part of the market than their large-caps peers.


 

Martin’s approach involves investing in three ‘silos’: economic recovery, structural growth and corporate turnarounds. He also favours businesses that are undervalued and under-researched, arguing that they make the portfolio less volatile.

The FE Research team, which holds the fund on the FE Invest Approved list, said: “The three silo approach is a good way to diversify the risks being taken in the fund. Martin spends a lot of time looking at possible negative scenarios to ensure he is prepared, which helps him to limit the price swings in this volatile part of the market.”

Looking at things from a volatility point of view and Invesco Perpetual Income, Invesco Perpetual High Income and Invesco Perpetual UK Strategic Income – which are all headed by FE Alpha Manager Barnett – sit at the top of the list.

The £6bn Invesco Perpetual Income fund has the lowest annualised volatility on our shortlist at just 8.84 per cent. Like his predecessor Neil Woodford, Barnett has a preference for defensive blue-chips that are reliable dividend payers and these have helped to shield the fund from the worst of the market’s volatility, as they have been in high demand since the global financial crisis.

Performance of funds vs sector and index over 5yrs

 

Source: FE Analytics

As the graph above shows, all of Barnett’s funds (although Invesco Perpetual Income and Invesco Perpetual High Income were headed by Woodford in the early years of the period) have delivered some of the sector’s best returns.

Invesco Perpetual UK Strategic Income leads here, thanks to its higher allocation to mid-cap stocks and their strong rally in recent years. This has not come with a vastly higher levels of risk – its Sharpe ratio, which is a measure of risk-adjusted returns, is the fourth highest in the peer group.

Over the past three years – which as noted above have presented investors with more turbulent conditions - MFM Slater Growth is in the top spot with a 60.36 per cent return, followed by Premier ConBrio Sanford Deland UK Buffettology with 52.26 per cent.


 

Both funds hunt lower down the market-cap spectrum, which has been a benefit in more recent times as worries such as weak global economic growth and low commodity prices have tended to hit international-facing large-caps the hardest.

Performance of funds vs sector and index over 3yrs

 

Source: FE Analytics

Both funds have enjoyed a strong run in recent years thanks to their managers’ bottom-up approaches and are sat in the sector’s top quartile over one, three and five years.

MFM Slater Growth is the best performing fund in the IA UK All Companies sector on a three-year view, while Premier ConBrio Sanford Deland UK Buffettology’s 27.86 per cent gain in 2015 made it the best performer in the peer group, when the average fund was up just 4.86 per cent.

ALT_TAG

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

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.