Derek Stuart, John Wood and management duo Anthony Cross and Julian Fosh are among a handful of UK growth managers that have achieved strong risk metrics while providing consistent returns at the helm of the same investment vehicle over the last decade, according to research from FE Trustnet.
Investors would be forgiven for remaining nervous on UK equities at the moment, given the disparity in performance between smaller, domestic-facing stocks and larger, global-facing companies, combined with a plummeting sterling and political uncertainty as a result of the vote for Brexit.
And yet, investors are often told to remain regionally diversified within their portfolios at all times to hedge against any future global headwinds.
For the UK investors who believe in retaining exposure to their home market, which funds are headed up by managers with long-term track records who have achieved both consistent returns and strong risk metrics?
To find this data, FE Trustnet excluded all managers in the IA UK All Companies sector that had ran their current fund for less than a decade. We then selected the funds that have achieved first or second-quartile annualised volatility, maximum drawdown (which measures the money lost if bought and sold at the worst times), Sharpe ratio (which measures risk-adjusted returns) and downside risk ratio (which measures potential to lose money in falling markets).
Out of these, we then chose the funds that have only found themselves outside of the first two quartiles for their performance during two years or less on an annualised basis over the last decade. The funds that managed to sail through these filters are listed in the below table:
Table of funds and their managers
Source: FE Analytics
Seven out of the nine funds listed are in the top quartile for all of the aforementioned risk metrics. However, only one fund has kept out of the bottom quartile for its annualised returns over the last decade.
Artemis UK Special Situations has been managed by FE Alpha Manager Derek Stuart since the turn of the millennium and is £1bn in size.
As the name suggests, the fund aims to exploit special situations through buying into firms that are undergoing positive changes but are undervalued by the market and these can be chosen from across the cap spectrum. Examples of the fund’s largest holdings include the likes of software business Micro Focus, BP, IT support company Computacenter and BT Group.
Despite current weakness in domestic-facing stocks, the fund has a 41.7 per cent weighting to mid-caps and an 8.9 per cent weighting to small-caps; the remainder of the fund is in blue-chips.
This may explain why the fund is in the third quartile over one, three and six months as well as over the last year. That said, it has achieved second-quartile returns on an annualised basis during six out of the last 10 years and was in the top quartile during the financial crisis of 2008.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Artemis UK Special Situations is in the second quartile for its Sharpe ratio and in the top quartile for its maximum drawdown, annualised volatility and downside risk. While it has arguably achieved the most consistent returns, it is seventh on the list for its total return over 10 years.
The runaway top-performer on the list for its total return is the four crown-rated Liontrust Special Situations fund, which is headed up by FE Alpha Manager duo Anthony Cross and Julian Fosh.
While the median return of the group composite is 121.8 per cent, the £1.7bn fund has returned 229.69 per cent over the last decade. On an annualised basis, it is in the bottom quartile for its return in 2013 and is in the third quartile for 2007, but has achieved top-quartile returns during seven of the last 10 years as well as year-to-date.
The fund adopts Cross and Fosh’s Economic Advantage process when it comes to stock selection, which involves buying companies that either have intellectual property, strong distribution channels or boast significant recurring business – Compass Group, Unilever and RELX are among some of its largest holdings.
Liontrust Special Situations - which is in the top quartile for its maximum drawdown, downside risk, annualised volatility and Sharpe ratio - is able to invest across the cap spectrum and holds approximately one third in FTSE 100 stocks, another third in the FTSE 250 index, 17.6 per cent in AIM stocks and the remainder in UK small-caps.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Another fund on the list that is top-quartile for all of the mentioned risk metrics and has achieved strong long-term returns is Majedie UK Focus, which falls into second place for its total returns over the last decade and has achieved six years of top-quartile returns on an annualised basis over the last decade.
It has been co-managed by Chris Field and James de Uphaugh since 2003, who were then joined by Matthew Smith in 2010 and FE Alpha Manager Chris Reid in 2012.
The £660m fund has a portfolio of 63 stocks, with its largest holdings including the likes of BP, HSBC, Anglo American and Barclays. Given the global-facing nature of the portfolio, it is perhaps no surprise that the four crown-rated fund has weathered this year’s market particularly well, having achieved a positive return of 0.48 per cent year-to-date while its peer group composite is down 0.79 per cent.
However, the fund is one of four in our list of nine funds that have suffered two bottom-quartile returns over the last decade on an annualised basis.
The funds that have escaped the bottom quartile during nine of the last 10 years however (aside from the aforementioned Liontrust UK Special Situations) are Invesco Perpetual UK Strategic Income, JOHCM UK Opportunities and Royal Bank of Scotland Growth.
Out of these three, JOHCM UK Opportunities has achieved the highest total return over the last decade of 142.06 per cent and is in the top quartile for its maximum drawdown, annualised volatility, downside risk and Sharpe ratio.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The five crown-rated fund was launched by FE Alpha Manager John Wood in 2005 and aims to achieve long-term growth through a concentrated portfolio – among its 27 current holdings are National Grid, Shell, British American Tobacco and RELX.
Invesco Perpetual UK Strategic Income is hot on its heels in terms of its total performance over 10 years though, having returned 128.28 per cent.
It has been managed by FE Alpha Manager Mark Barnett since the start of 2006 and aims to achieve both an above-average income as well as growth – the five crown-rated fund currently yields 3.26 per cent.
The £1.1bn fund has its highest weighting in dividend-paying blue-chips such as AstraZeneca, BP and Imperial Tobacco, although it is able to invest across the cap spectrum.
Other funds that deserve an honourable mention that have made it onto our list include Liontrust Macro UK Growth, Majedie UK Equity and Franklin UK Rising Dividends.
