Recent years have proven to be rather challenging ones for UK funds after the strong bull market that had buoyed equities started to peter out and leave investors with some slim pickings for returns.
Since the start of 2012, the FTSE All Share index has posted a 41.34 per cent total return – and the average UK fund has beaten this. FE Analytics shows the IA UK Equity Income sector is up 56.31 per cent over the same period while the average IA UK All Companies members has gained 53.51 per cent.
Performance of sectors vs index since 1 Jan 2012
Source: FE Analytics
As the graph above suggests, however, the individual years within it have been very different. While the FTSE All Share made 12.30 per cent in 2012 and 20.81 per cent in 2013, returns fell to 1.18 per cent in 2014 and just 0.98 per cent last year; over the first five months of 2016, the index has added another 1.97 per cent.
While the average IA UK All Companies and IA UK Equity Income fund has managed to outperform the index in each of the last four full calendar years (aside from IA UK All Companies’ 0.64 per cent rise in 2014), they have struggled to keep up with it in 2016 so far.
Our data shows that the average IA UK All Companies fund has made a total return of just 0.18 per cent over the past five months while the typical IA UK Equity Income fund is slightly in negative territory with a 0.04 per cent loss.
With the second half of the year firmly in sight, FE Trustnet thought it would be interesting to see which UK funds could be on track for a fifth consecutive year of outperforming the FTSE All Share – although with seven months to go, there’s still all to play for.
The two sectors have a combined 323 funds with track records spanning back to 1 January 2012 and less than one-third of these (93, to be exact) beat the index in 2012, 2013, 2014 and 2015.
What’s more, 11 of these are in positive territory – as revealed in the table below.
Source: FE Analytics
The fund that has made the most ground and is outpacing the index by 2.87 percentage points is Evenlode Income, which is managed by Hugh Yarrow. The fund has just moved into the IA UK All Companies sector after failing to meet the yield requirement of the equity income peer group.
Yarrow and deputy manager Ben Peters look for quality businesses that have resilient profit streams, sustainable growth profiles and limited reliance on leverage or capital reinvestment. This means they tend to be led towards firms in the consumer goods or technology sectors and have little exposure to areas such as mining.
Square Mile, which gives the fund an ‘A’ rating, said: “Patience is required, however, and while the underlying holdings should be better insulated from a sharp market downturn, the fund is unlikely to outperform in a strong rising market. Investors should therefore consider this fund, which could be seen as a core holding within a diversified portfolio, with a medium to long-term investment horizon.”
The second fund on the list is Jeremy Smith’s Threadneedle UK Overseas Earnings but it is a product for institutional investors. Its outperformance has been down to its avoidance of the banking and mining sectors.
Keen readers will have already spotted that five of the 11 funds highlighted in the table are run by Columbia Threadneedle.
Performance of Columbia Threadneedle’s UK funds since 1 Jan 2012
Source: FE Analytics
Chris Kinder’s Threadneedle UK Extended Alpha is in third place after its 3.10 per cent total return in 2016’s first five months meant it beat the FTSE All Share by 1.13 percentage points. The fund has been able to make the most of the difficult market conditions through its short book.
Kinder also runs the Threadneedle UK fund, where outperformance has been attributed to its process of using short-term market volatility to take a contrarian stance in a bid to exploit long-term valuation opportunities.
Richard Colwell has two funds on the list as he runs Threadneedle UK Growth & Income and Threadneedle UK Equity Income. Colwell is a bottom-up manager who also looks for attractive businesses that have fallen out of favour with the wider market.
As mentioned, though, we’re still some way off the end of 2016 and anything could happen between now and then – especially if the market keeps on the rollercoaster ride it’s been on so far.
While none of the above funds are guaranteed to end the year ahead of the FTSE All Share, another eight are lagging it by less than one percentage point and could overtake it by the end of 2016 (or fall even further behind it).
Source: FE Analytics
Nick Train’s CF Lindsell Train UK Equity fund is one notable entrant on this list. The fund has outperformed the FTSE All Share in each of the last eight full calendar years and is behind the index by 12 basis points in the first five months of the year.
Meanwhile, funds that have outperformed in each of the past four calendar years but are currently five percentage points or more behind the market include Jupiter UK Growth, Standard Life Investments UK Equity Income Unconstrained and Fidelity Moneybuilder Growth.
