The shock result of the EU referendum has caused a huge degree of uncertainty within financial markets, a trend that is unlikely to dissipate until the many unanswered questions the Brexit vote has thrown up are addressed. 
With the search for a new Conservative leader now underway while, at the same time, squabbling among the opposition and the potential for a second referendum on Scottish Independence intensifies, it is hard to imagine a world where UK equities rally hard during a period where the political landscape is so murky.
On top of that, there is the threat the result could have on the UK economy. While the Bank of England has said its “standing ready” and chancellor George Osborne has attempted to sooth markets, all eyes will be on the future of foreign investment.
Therefore, certainly over the short to medium term, capital preservation will be the main priority for many investors. Of course, one way investors may want to achieve that is by avoiding UK equities entirely within their portfolios, though some will want a more diverse approach.
Nevertheless, here we highlight the best UK funds at doing just that over the past five years – with the major caveat, of course, being that the past is no guide to the future.
To do this, we combined the IA UK All Companies and IA UK Equity Income sectors into one master peer group.
In order for funds to qualify, they had to be top decile in the peer group for downside capture ratio relative to the FTSE All Share, maximum drawdown, maximum loss, downside risk, risk-adjusted returns (as measured by the Sharpe ratio) and annualised volatility over the past half a decade in the mega-sector.
This left us with just eight out of a possible 349 funds with a long enough track record.
To rank them further, we analysed their maximum drawdown in each of the last five calendar years. If they were top decile in a year they would receive one point, if they were tenth decile they would receive 10 points meaning the lowest they could score is five and highest they could score is 50 (the lower the overall score the better).
Though total returns were not screened for in this study, all eight funds have beaten the FTSE All Share by at least 20 percentage points over the period in question and, as can be imagined, in a far smoother manner.
Best performing UK funds for capital preservation over 5yrs
Source: FE Analytics
Sitting at the top of the table with a joint score of 6 is the £11.6bn Invesco Perpetual High Income and £5.9bn Invesco Perpetual Income funds.
Both are now managed by FE Alpha Manager Mark Barnett following Neil Woodford’s departure from the Henley-based group in 2014 and also carry five FE Crowns.
Barnett, like Woodford before him, focuses on high quality income-generating stocks that tend to have a large market capitalisation (though some unlisted stocks and smaller companies feature lower down the portfolio).
The large majority of the stocks Barnett holds tend to have little cyclicality in regard to their earnings, with tobacco and healthcare stocks making up a significant proportion of both funds’ total assets.
Not only are both funds – which now reside in the IA UK All Companies sector – among the top decile in the two peer groups for maximum loss (the shortest period of losses without making a gain), downside capture ratio and the other three metrics needed to qualify for this study, but they have also been the most consistent at protecting investors against falls.
Both were top decile for maximum drawdown (or the most an investor would have lost if they had bought and sold at the worst possible times) in four of the last five calendar years.
Maximum drawdown of funds and index
Source: FE Analytics
Though Invesco Perpetual High Income dropped into the second decile in 2013 for maximum drawdown and Invesco Perpetual Income did the same for in 2015, as the table above shows, both funds shielded investors far better than the FTSE All Share in each of those years.
Barnett’s Invesco Perpetual UK Strategic Income fund (which he launched in 2006) is also among the eight best UK portfolios for capital preservation in this study, but due to its third and second decile maximum drawdowns in 2013 and 2015, respectively, (which largely came about due to its higher weighting to mid-caps) the fellow five crown-rated offering ranks fourth on the list with a score of 8.
In second, though, is Carl Stick’s five crown-rated Rathbone Income fund.
Like Barnett’s portfolios, Rathbone Income has had to move to the IA UK All Companies sector after failing to meet the IA UK Equity Income peer group’s yield requirement.
Nevertheless, not only has Rathbone Income nearly doubled the returns of the FTSE All Share over five years thanks to Stick’s value-orientated approach, it has been top decile for maximum drawdown in three of the last five calendar years and second decile in two – 2013 and 2015.
The only other IA UK All Companies fund to feature (though it has always been a member of the peer group) is Liontrust Special Situations, which is run by the FE Alpha Manager duo of Anthony Cross and Julian Fosh, with its score of 9.
The managers focus on stocks they believe have an ‘economic advantage’, by which they mean companies that have intellectual property, recurring revenue streams and strong distribution channels.
Though the Liontrust fund posted a larger maximum drawdown than the FTSE All Share in 2014 (it was third decile that year in the two peer groups), the table below shows Cross and Fosh’s approach has been rewarding given its biggest potential losses in 2011, 2012, 2013 and 2015 were far lower than the index’s and the portfolio has beaten the benchmark from a total return point of view in each of the last five years.
Performance and maximum drawdown of fund and index
Source: FE Analytics
Turning to the IA UK Equity Income sector now and two funds with very similar approaches feature – Trojan Income (with a score of 10) and Fidelity MoneyBuilder Dividend (with a score of 11).
Both sets of managers tend to favour large-cap multinationals that have reliable earnings and also aim to grow their income pay-outs to unitholders – a feat they have both achieved having increased their dividends in each of the past five years.
Trojan Income, which is run by FE Alpha Manager Francis Brooke, has arguably been the better of the two at protecting capital in recent volatile markets, though.
Indeed, it has had the lowest downside capture ratio out of all the eight funds in this study, as FE data shows it has captured just 56 per cent of the FTSE All Share’s falls over the period in question. Its score of 10 in the final ranking comes from the fact its maximum drawdown was fourth decile in 2013 and third decile in 2015.
It’s not all mega-cap funds that have made it onto the list, however, with MI Chelverton UK Equity Income joining Fidelity MoneyBuilder Dividend on 11 points.
The five crown-rated fund, which is co-managed by David Taylor and David Horner, only holds 32 per cent in stocks with a market-cap of more than £1bn but has still managed to protect investors far more effectively than most of its peers.
Apart from being top decile for all the metrics needed to qualify for this study, the £439m fund was top decile for maximum drawdown in 2012, 2013 and 2015.
It was in the second decile in 2011 when the European sovereign debt crisis intensified (but still had a lower maximum drawdown than the index) with the real pain coming in 2014 (a year where investors sharply rotated out of smaller companies into larger ones for ‘safety’) when it dropped to the sixth decile.
Performance of funds versus index over 5yrs
Source: FE Analytics
As the graph above shows, however, MI Chelverton UK Equity Income has been the best performer from a total return perspective out of the eight featured in this article over five years with gains of 79.85 per cent, beating the FTSE All Share by 45 percentage points in the process..
