The five crown-rated SVM UK Growth fund has been the best UK portfolio for recovering losses over the past 10 years, according to FE Analytics, as none of the 261 portfolios with a long enough track record have managed to bounce back faster from their biggest fall over the period in question. 
Falls in value are an inevitable outcome in investing, though market participants aim to make sure any losses are only temporary.
As such, funds that have demonstrated a clear ability to protect investors’ money over the years tend to be the most popular – especially in the current environment of market volatility and macroeconomic uncertainty.
To analyse such funds, FE Trustnet usually takes into account metrics such as downside risk (which indicates a fund’s propensity to lose money during a bear market), Sharpe ratio (which measures risk-adjusted returns), annualised volatility and maximum drawdown (which shows the most an investor would have lost if they had bought and sold at the worst possible times).
However, given funds will always go through tough periods, another metric investors may want to use when assessing funds is ‘recovery period’ – which highlights the number of months a portfolio, sector, index or security took to recover from its biggest loss over a given timeframe.
For example, FE data shows that the FTSE 100 has had a recovery period of 40 months over the past 10 years. This is because its biggest single fall (when calculated monthly) started in October 2007, it reached its lowest level in February 2009 and then eventually recovered its losses in February 2011. This recovery period is highlighted in the graph below.
Performance of index over 10yrs
Source: FE Analytics
When using that same metric in the Investment Association’s three main UK equity sectors, we can see that SVM UK Growth – which is £140.6m in size and headed-up by Colin McLean and FE Alpha Manager Margaret Lawson – has been the best fund for recovering the loss over the past decade.
The fund’s recovery period stands at just 22 months as even though its maximum drawdown period started in May 2008 and ended in February 2009, it was back in the black by March 2010 thanks to a 53.82 per cent gain following the depths of the global financial crisis.
Therefore, its recovery period has been three months shorter than the second fund on the list – Majedie UK Focus.
Funds’ recovery periods, maximum drawdowns and total returns over 10yrs
Source: FE Analytics *figures priced monthly
The fund, which is a multi-cap offering but has generally been biased towards the lower end of the FTSE All Share over the longer term, has also been one of the best performers from a total return perspective as well.
According to FE Analytics, SVM UK Growth has been a top decile performer in the competitive IA UK All Companies sector and comfortably beaten the FTSE All Share over one, three, five and 10 years. It has also outperformed in eight out of the last 10 calendar years.
The fund’s performance means it is currently a member of the FE Invest Approved List.
The FE Research team rates Lawson and McLean’s three basket approach – core (steady businesses), tactical (companies where the managers express a macro view) and alpha kicker (special situations) – and believe the strategy will continue to add value over time.
“It also offers some flexibility – it currently uses at least one-third of its assets in the ‘tactical’ basket to give it an aggressive position based on the manager’s positive view on the UK domestic market,” FE Research said.
“However, this same flexibility could also allow the fund to take a more defensive stance, should the managers identify a worsening outlook for the global economy.”
Other funds to feature on the list (thanks to the fact they have had recovery periods of less than 30 months) include JOHCM UK Opportunities, Jupiter UK Special Situations and Barclays UK Opportunities.
Of course, the recovery periods ratio is by no means perfect and, like all other metrics, should never be used in isolation when analysing a fund.
Indeed, funds could have a very short recovery period but lost a significant amount in just one or two months and then gone on to rebound dramatically – a performance profile most cautious investors would be unable to stomach.
On top of that, given all UK funds’ maximum drawdowns over the past 10 years occurred during the global financial crisis, recovery periods tend to be biased towards portfolios that had a barnstorming 2009.
Of the 12 funds including on the table, the large majority have a strong value-tilt (an investment style that worked well as sentiment rebounded) as they focus on bombed-out stocks the managers believe will witness a reversal in fortunes.
Nevertheless, funds that have had the best recovery period ratio have also performed well in other metrics.
SVM UK Growth, for example, is top quartile for its risk-adjusted returns and maximum drawdown (as well as its strong total return profile) over 10 years.
Indeed, out of the 12 UK funds with the best recovery periods, 11 have had a better monthly maximum drawdown than the FTSE All Share over 10 years (the exception being Schroder Recovery) and 11 have outperformed the index over that time (the exception this time being M&G Recovery).
This relationship is shown even more dramatically when you turn the study on its head and look at the funds with the longest recovery periods over the past 10 years.
Funds’ recovery periods, maximum drawdowns and total returns over 10yrs
Source: FE Analytics *figures priced monthly
The three UK funds with the longest recovery periods over 10 years – Family Charities Ethical, Aviva Inv UK Equity MoM 2 and Henderson UK Strategic Income at 107 months (or nearly nine years) and so counting – are among the bottom three performers in their respective sectors over that time and have yet to return to their pre-crisis peaks.
Furthermore, all of the 12 funds with the longest recovery period over the past 10 years are currently bottom quartile over that time – which is largely due to their inability to rebound from the global financial crisis.
Performance of funds versus index over 10yrs
Source: FE Analytics
FE data shows, for example, that an equally weighted portfolio of those 12 funds has returned just 17.47 per cent over 10 years, underperforming the index by more than 30 percentage points in the process.