The UK’s historic vote to quit the European Union is now one month behind us and since then the FTSE 100 has gone to make relatively strong returns against what has been, at times, a backdrop of economic and political uncertainty.
FE Analytics shows that the FTSE 100 has made a 6.24 per cent total return since the result of the in/out referendum on the country’s membership of the EU was announced, taking its year-to-date return to 10.34 per cent. The international nature of the UK’s largest companies, and the fact that many reap their revenues in dollars, has helped maintain investor sentiment towards this part of the market.
When it comes to investment funds, however, the picture is not as rosy. The average IA UK All Companies and IA UK Equity Income funds are behind the index with respective total returns of 1.78 per cent and 1.77 per cent while the IA UK Smaller Companies sector has made a 3.05 per cent loss.
Performance of index and sectors since 23 Jun 2016
Source: FE Analytics
The resilience of the equity market (although sterling has been hit much harder and is at a 30-year low against the dollar) has surprised many given that the consensus view was the ‘Remain’ vote would prove victorious, albeit by a slim margin.
Although a month is a very short period of time in investment terms, we thought it would be interesting to see which UK funds managed to top their sector over the run-up to the referendum as well as over the month since.
Our data shows that 32 funds of the 266 in the IA UK All Companies sector are first quartile for the periods spanning 1 January to 23 June and 23 June to 23 July. The table on the following page shows 10 of these, ranked in order of their returns over the past month.
Source: FE Analytics
One aspect that jumps out from the table is the number of index trackers that are present – five of the 10 funds highlighted have a passive strategy. This is also apparent when the full 32 outperforming funds are considered, as 14 are trackers.
The year as a whole has presented a challenge for active funds after oil and mining companies, which many were avoiding because of their cyclical nature and under-pressure profits, rallied hard on the back of recovering commodity prices.
According to FE Analytics, the average IA UK Companies fund’s 2.55 per cent total return since the start of the year is more than 5.5 percentage points behind the rise in the FTSE All Share. What’s more, 88 per cent of the funds in that sector are lagging the index since 1 January.
Not all active funds have struggled, however. Topping our list of pre- and post-Brexit outperformers is Hugh Yarrow’s five FE Crown-rated Evenlode Income fund, which has made the sector’s second highest total return over the year to date.
Performance of fund vs sector and index since 1 Jan 2016
Source: FE Analytics
Yarrow and deputy manager Ben Peters focus on quality businesses that have resilient profit streams, sustainable growth profiles and limited needs for capital reinvestment or leverage.
This leads them to favour companies in the consumer goods, technology and healthcare sectors, while they tend to avoid those in more cyclical areas like miners.
Returns after the Brexit vote were driven by holdings such as Unilever, Diageo and Johnson & Johnson, which are all in the portfolio’s top 10 and are beneficiaries of sterling weakness.
While Evenlode Income and Liontrust UK Growth have a strong long-term track records, the same cannot be said of the other two active funds on the list. Halifax Special Situations and Aberdeen UK Equity have underperformed both the index and their average peer over three, five and 10-year periods – by a very wide margin in the case of the Halifax portfolio.
Looking at the IA UK Equity Income sector, we see that 11 funds made first quartile returns for both 1 January to 23 June and 23 June to 23 July.
Source: FE Analytics
Compared with the IA UK All Companies sector, this peer group’s list offers a better showing of active funds with strong long-term track records. The only tracker in this sector – Vanguard FTSE UK Equity Income Index – is first quartile for the pre-Brexit period but third quartile for the month after.
Five of the 11 hold the top rating of five FE Crowns (with another owning four crowns), while three have an FE Alpha Manager at the helm and two – Threadneedle UK Equity Income and Trojan Income – have places on the FE Invest Approved List.
Performance of funds vs sector and index over 3yrs
Source: FE Analytics
It must be noted that two of the funds on the list (Threadneedle UK Equity Income and M&G Charifund) are lagging the FTSE All Share since the start of the year despite their top-quartile numbers.
