Just 19.86 per cent of active funds in the IA UK All Companies and IA UK Equity Income sectors are ahead of the FTSE All Share since it embarked on its Brexit-induced rally, according to FE data. 
Aside from early confusion, UK equities have soared since 24 June when the country voted to leave in the EU referendum – despite the clear political and economic uncertainty the Leave camp’s victory has created.
Indeed, the FTSE All Share has been powered forward by a significant decline in the value of sterling (which has benefitted the index’s large multinational stocks) and investors have felt comfortable taking risk after the Bank of England moved to slash interest rates and embark on a new QE programme to support the economy.
It means that, according to FE Analytics, the FTSE All Share has made 8.39 per cent in total return terms. However, our latest study suggests a significant proportion of investors in active funds have not seen those sorts of gains.
In fact, the ‘average’ active equity fund across the two major UK Investment Association sectors has returned 300 basis points less than the index (which is the most commonly used benchmark across the two peer groups) as less than 20 per cent of the 297 portfolios with a long enough track record have managed to keep up with the rally.
Performance of active funds versus the index since EU referendum
Source: FE Analytics
Highlighting this trend differently, all but three of the 38 passives in the two sectors are currently sitting top and second quartile since Brexit became a reality. Those three exceptions are passives that don’t track the FTSE 100 or FTSE 250.
Still, active managers are doing a better job over recent months than they have done over the year-to-date. According to FE Analytics, just 15.15 per cent of them have beaten the FTSE All Share’s returns of 11.09 per cent in 2016 so far.
There have been a number of factors behind the strong performance of the index and the general underperformance of active funds. The major one, though, revolves around a significant shift in market dynamics.
Last year, some 75 per cent of active UK funds beat the index as the majority were overweight mid and small caps (which isn’t difficult to do given the FTSE All Share is 80 per cent weighted to the FTSE 100) by being underweight some of the largest constituents members of index – notably mining and oil companies which were panned in 2015 as commodity prices collapsed.
This time around, however, smaller companies have battled against Brexit angst while commodity stocks have witnessed a rebound as the prices of iron ore, oil etc. have recovered.
Since Brexit, though, this trend has been amplified – largely due to the fall in the pound.
Performance of indices since EU referendum
Source: FE Analytics
Again, the FTSE 100 has led the rally due to the fact that it is some 70 per cent exposed to non-UK earnings – a figure that is far lower across the FTSE 250 and FTSE Small Cap indices – as currency weakness has boosted those stocks that report in the likes of US dollars and euros and those that have operations overseas.
There is also the concern that, given UK mid and small-caps tend to be more domestically orientated, they will soon feel the pinch of the impact Brexit is likely to have on the UK economy.
When looking at the performance of individual active UK funds since the referendum, that trend is clear to see.
Indeed, the top 10 performing active funds across the two sectors since the EU referendum are largely those with a large-cap bias and hefty exposure to stocks with overseas exposure. These include the likes of Evenlode Income, Newton UK Income, CF Lindsell Train UK Equity, Liontrust UK Growth and Royal London Sustainable Leaders Trust.
Best performing UK active funds since Brexit
Source: FE Analytics
The only fund on the list with a clear mid and small-cap bias is Ardevora UK Equity, though its returns of more than 13 per cent have certainly been helped by its largest holding – Anglo American – which has made 30 per cent since the referendum.
Looking at the other end of the spectrum, though, and the list of worst performing UK funds is dominated by those with clear bias towards the bottom end of the FTSE All Share.
Of the 13 funds that are still sitting on a loss since the Brexit vote, the large majority are overweight smaller companies relative to the index (such as Elite Webb Capital Smaller Companies Income & Growth, CF Miton UK Value Opportunities, Schroder UK Mid 250 and Marlborough Multi Cap Income).
The other loss-making funds tend to be those with a high weighting to financials and housebuilders, sectors that has been hit by concerns over future UK economic growth and the Bank of England’s move to slash interest rates.
These include Jupiter UK Growth, Premier Ethical and Standard Life Investments UK Ethical.
The loss-making UK funds since Brexit
Source: FE Analytics
However, while market positioning (i.e. a structural overweight to mid and small caps relative to the index) is the major driver of the ‘average’ UK active fund’s underperformance since the referendum, the fact that cash levels have been rising is another factor.
A recent FE Trustnet study showed that cash weightings across the two peer groups have doubled to more than 6 per cent since vote, suggesting that many managers are happy to miss out potential upside in this current rally in the expectation they will be able to buy into the market at lower levels when (they hope) it eventually corrects.
