Only one-quarter of UK equity funds have beaten the FTSE All Share over the run-up to yesterday’s referendum on the UK’s membership of the European Union, new analysis by FE Trustnet shows, but some funds have been able to achieve double-digit gains.
At the time of writing, the UK was still going to the polls to vote whether the country will remain in the European Union (EU) or leave the bloc. It is widely expected that the results of the referendum – which the pollsters said was “too close to call” – will be known by the time this article is published.
Since prime minister David Cameron announced the date of the referendum on 20 February 2016, it seems like the country has spoken of little else. Both the ‘Remain’ and ‘Leave’ campaigns dusted off their arguments around 10 weeks ago, using varying combinations of hope and fear to make their cases and accusing each other of mis-representing the facts.
Against this backdrop – which has largely been marked by uncertainty if not outright fear – the stock market has been able to make some progress. FE Analytics shows the FTSE All Share has posted a 6.99 per cent total return over this period.
The average IA UK All Companies fund is also in positive territory over this period, although its 5.99 per cent gain does fall short of the index’s rise. The average IA UK Equity Income and IA UK Smaller Companies are also lagging the index, by a wider margin.
Performance of sectors and index between 20 Feb and 22 Jun 2016
Source: FE Analytics
There are 394 funds split across these three sectors and a deeper look shows that only 101 have beaten the FTSE All Share since the referendum date was announced. Of course, this article is backward looking and things could change rapidly after the result is known.
All but two funds are in positive territory. MFM Slater Recovery has a made a 2.98 per cent loss while MFM Slater Growth is down 0.51 per cent.
At the other end of the table, however, Standard Life Investments UK Equity Recovery has made a 24.59 per cent return. As its name suggests, David Cumming’s £41m fund invests in large and medium-sized companies that are out of favour with the market but are viewed by the manager as having the potential to turn things around.
The fund did make fourth quartile returns in 2015 and 2014 after value stocks found it difficult to make headway but is in the second quartile over the three and five years thanks to strong performance outside of those periods.
The table below, which shows the 20 UK funds making the highest returns between 20 February and 22 June 2016, reveals that a number of those at the top of the performance table are value portfolios.
Source: FE Analytics
Schroder Recovery, M&G Recovery, L&G UK Special Situations Trust and Dimensional UK Value are among those that have a value discipline in their investment process.
Some of these funds have gone through a difficult couple of years (if not a longer period) but have rebounded hard this year; as mentioned in a recent article, it remains to be seen whether this is down to a change in market leadership or is more of a short-term blip.
All of the mentioned value funds are currently outperforming the FTSE All Share and their average peer on a three-year view, aside from Dimensional UK Value which is lagging by a significant margin.
Performance of funds vs sector and index over 3yrs
Source: FE Analytics
When it comes to bonds, only one – BNY Mellon Global Opportunistic Bond – of the 231 funds in the IA Sterling Strategic Bond, IA UK Gilts, IA Sterling Corporate Bond and IA Sterling High Yield sectors has lost money since 20 February 2016.
Three – Natixis Loomis Sayles Strategic Income, L&G High Income Trust and JPM Global High Yield Bond – have made double-digit gains and another 98 have risen by more than 5 per cent.
Source: FE Analytics
The table above shows that the funds making the highest gains tend to be in the IA Sterling High Yield sector, which has posted an average gain of 7.08 per cent (beating the FTSE All Share by 9 basis points).
IA Sterling Corporate Bond is up 4.80 per cent, IA Sterling Strategic Bond has gained 4.38 per cent and the average IA UK Gilts fund is up just 1.96 per cent.
The top performer, however, comes from the IA Sterling Strategic Bond sector. Natixis Loomis Sayles Strategic Income, which is headed by FE Alpha Managers Dan Fuss, Elaine Stokes and Matthew Eagan, has made 12.17 per cent over the period looked at.
It has a value-driven approach and focus on stock selection. Close to 70 per cent of its assets are invested in US bonds, with only 3.1 per cent allocated to the UK. It also has a sizeable weighting to high yield; 31.9 per cent in bonds rated Ba and 19.8 per cent is in B-rated bonds.
Grouping the four multi-asset peer groups and the IA Targeted Absolute Return sector together and we can see that none of the 575 funds included have made a double-digit return.
Source: FE Analytics
At the bottom of the table, however, an interesting trend can be seen. Out of the 50 funds posting a loss since 20 February, 40 of them reside in the IA Targeted Absolute Return sector – the very peer group that investors have been buying to protect against Brexit volatility.
F&C Global Equity Market Neutral has delivered the worst result after losing 7.68 per cent, followed by GAM Star Discretionary FX with a 6.81 per cent fall and GAM Star Keynes Quantitative Strategies with a 6.28 per cent decline.
The popular Standard Life Investments Global Absolute Return Strategies (GARS) can also be found on the list with its 0.73 per cent loss.