Skip to the content

How many of 2015’s bottom-quartile funds have jumped to the top of their sector?

22 June 2016

FE Trustnet has run the numbers to show that a large number of UK funds are now in the top quartile of their sector, after underperforming during 2015.

By Gary Jackson,

Editor, FE Trustnet

More than half of the UK funds that made bottom-quartile returns last year have jumped into the top-quartile over 2016 so far, new research by FE Trustnet shows, as contrarian managers, index trackers and persistent laggards move to the top of the performance tables.

Over recent weeks, it has seemed that almost every time we mention a fund that was in the fourth quartile in 2015 we have to caveat that statement by noting it has jumped to the top of the sector over the past few months.

We decided to see if this really was the case by looking at the rankings of all the funds in the main Investment Association equity sectors. What we found is that a disproportionate number of bottom-quartile funds in 2015 have moved into the first quartile in 2016, especially in the case of the two main UK sectors – IA UK All Companies and IA UK Equity Income.

These two sectors have had the highest number of apparent turnaround stories: just over 50 per cent in both cases. They’re followed by IA Asia Pacific ex Japan and IA Global, while the sectors with the fewest turnarounds have been IA China/Greater China and IA UK Smaller Companies.

 

Source: FE Analytics

The above table above the main equity sectors, with the number of funds that were in the bottom quartile in 2015, the number of these that have moved into the top quartile this year and what this shift is in percentage terms.

As can be seen, the two UK sectors clearly have a higher proportion of funds moving between the top and bottom sectors – they are the only peer groups were more half of 2015’s laggards are now in the top quartile.

The table on the following page reveals all 34 IA UK All Companies funds that have made the move and it’s interesting to note how many of them are index trackers.

In fact, the average active UK fund seems to have had trouble keeping up with the index this year thanks to the turmoil created by the country’s referendum on its membership of the European Union along with other factors.

Performance of sectors vs index over 2016

 

Source: FE Analytics

FE Analytics shows that the average IA UK All Companies fund is down 1.14 per cent in total return terms while the average IA UK Equity Income fund has lost 1.46 per cent. The FTSE All Share, in comparison, is up 1.35 per cent.


 

Source: FE Analytics


The proportion of funds making such a move is high compared with recent years: just 21.9 per cent of the IA All Companies funds that were in the fourth quartile in 2014 went to post top-quartile numbers in the following year.

A look at the table on the previous page shows a mixed bag of active funds have made the jump from the bottom to top quartile as well as the index trackers.

The fact that value funds such as Investec UK Special Situations, Schroder Recovery and Jupiter UK Special Situations is telling.

The value investing style has underperformed growth for a number of years now as investors preferred the relative safety and attractive dividends being offered by quality stocks. In essence, the wave of liquidity prompted by unprecedented quantitative easing programmes washed into so-called bond proxies and caused them to lead the post financial crisis market rally.

The extent of this underperformance has reached such levels that some are now claiming value is due a resurgence. However, it remains to be seen whether the bounce in value funds this year is the start of this resurgence or just a short-term blip.

On the other hand, there are a few funds on the list that have been highlighted several times for their consistent underperformance.

A good example of this is Halifax Special Situations. This £145.1m fund turned in tenth decile returns in 2015, 2014, 2013 and 2012 and ninth decile returns in 2011 and 2010; over 10 years, it has made 13.04 per cent – underperforming the FTSE All Share’s 68.62 per cent gain and make it the third lowest returner in the peer group.

Performance of fund vs sector and index over 10yrs

 

Source: FE Analytics

Indeed, a recent FE Trustnet study that ranked the IA UK All Companies sector on a range of performance and risk metrics suggested that the fund was the second worst of its peer group after sitting bottom-decile when it comes to cumulative five-year returns, alpha generation, Sharpe ratio, upside capture and downside capture.

Over 2016 so far, however, the one FE Crown-rated fund has made a 1.74 per cent total return, ranking it 34th out of 269 funds in the sector. Other funds that were flagged for consistent underperformance in our recent study but are in the top quartile this year include IFSL Trade Union Unit Trust, Dimensional UK Value and VT Smart Dividend UK.

Given the potentially confusing state of affairs here, we’ll be following up on these findings in another article to ask the experts if some funds are poised for a long-term turnaround or whether they are just benefitting from short-term tailwinds and could go on to underperform.


When it comes to the IA UK Equity Income sector, the 52.6 per cent of fourth-quartile funds moving into the top quartile also looks high compared to the recent past – in the previous period, just 31.6 per cent of funds did this.

 

Source: FE Analytics

Again, there’s a similar pattern to the IA UK All Companies sector: trackers being some of the peer group’s best performers, funds that have a strong track record (such as Threadneedle UK Equity Alpha Income) recovering from a single bad year and those that have underperformed for several years running (like Elite Charteris Premium Income) jumping to the top.

FE Trustnet Registration

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.