Liontrust Special Situations, Invesco Perpetual High Income, Newton UK Opportunities and Unicorn Outstanding British Companies are some of the IA UK All Companies funds that have performed strongly during testing times for the FTSE All Share, analysis by FE Trustnet suggests.
Although the FTSE All Share has made double-digit gains over a rocky 2016, many investors are concerned that issues such as Brexit and lacklustre global growth could prompt a fresh bout of troubles for the index and are therefore focusing on more defensive investment options.
With this in mind, we looked across the IA UK All Companies sector and filtered it down to the funds that outperformed the FTSE All Share between 1 January 2008 and 30 August 2016 when it comes to total returns, maximum drawdown and annualised volatility, as well as posting a downside capture of less than 100 per cent.
There are 213 funds in the sector with a long enough track record to be included in this study but after these filters were applied, only 29 remained. They can be seen in a table on the following page, ranked in order to highest total return.
The fund from the list that has made the highest total return is Liontrust Special Situations, which is headed up by the FE Alpha Manager duo of Anthony Cross and Julian Fosh. Over the period in question, it’s made 205.35 per cent and outperformed both the index and its average peer by close to 200 percentage points.
Performance of fund vs sector and index since 1 Jan 2008
Source: FE Analytics
Its portfolio essentially combines the best ideas of the successful Liontrust UK Growth and Liontrust UK Smaller Companies funds, which are built using their Economic Advantage process. This process looks for companies that have strong intangible assets such as intellectual property, strong distribution channels and significant recurring businesses.
The FE Research team said: “The fund has done a good job of protecting investors’ capital so far. Its largest loss occurred in 2007 when its allocation to smaller companies hurt it as they were hit in mid-2007 by the global economic slowdown. The following years, and in 2011 and 2015 in particular, the fund was rewarded by its focus on quality businesses, namely those able to grow regardless of the economic context.”
Over the period looked at in this research Liontrust Special Situations is the sector’s second highest returner, is ninth best for annualised volatility, third best for downside capture and 25th for maximum drawdown.
Source: FE Analytics
Looking at the downside capture ratio – which indicates a fund’s performance relative to the benchmark in down markets – shows that FE Alpha Manager Chris Hutchinson’s £34.2m Unicorn Outstanding British Companies fund has performed best according to the criteria used in this article.
Since the start of 2008, the fund has outperformed the FTSE All Share by around 130 percentage points – which might not be surprising given that it focuses on companies from the Alternative Investment Market.
However, it has been able to achieve these returns with less annualised volatility and a lower maximum drawdown than the index. This is down in part to Hutchinson’s focus on ‘outstanding’ businesses, or those with very predictable revenues, earnings and cash flows, a presence in growing markets, market leadership and “decent, experienced” individuals at the helm.
Performance of fund vs sector and index since 1 Jan 2008
Source: FE Analytics
Unicorn Outstanding British Companies is also ranked fifth in the sector for total returns, 12th for annualised volatility and 15th for maximum drawdown.
Moving over to annualised volatility and FE Alpha Manager Mark Barnett’s Invesco Perpetual High Income fund tops the shortlist, followed by his Invesco Perpetual Income and Invesco Perpetual UK Strategic Income funds. Neil Woodford did run the Invesco Perpetual High Income and Invesco Perpetual Income for the bulk of the period in question.
Performance of fund vs sector and index since 1 Jan 2008
Source: FE Analytics
The outperformance of Invesco Perpetual’s UK equity income funds in down markets is well known and has been demonstrated over the long term, with the flagship offerings avoiding the worst of the dotcom bubble’s bursting after Woodford maintained an underweight to tech stocks.
A preference for defensive areas such as healthcare and tobacco (Invesco Perpetual High Income, for example, has Reynolds American, British American Tobacco, AstraZeneca, Imperial Tobacco and Roche in its top 10 holdings) has helped the funds to protect capital in difficult markets.
Invesco Perpetual High Income is not only the top of the table for annualised volatility in this study's shortlist, but is also in first place for the overall sector. Furthermore it’s in 59th place for total returns since 1 January 2008, fourth for maximum drawdown and ninth for downside capture.
Finally, Newton UK Opportunities – which is headed by FE Alpha Manager Christopher Metcalfe and Paul Stephany but had Ben Russon at the helm between 1 July 2005 and 12 February 2013 – is first on this shortlist for maximum drawdown.
Performance of fund vs sector and index since 1 Jan 2008
Source: FE Analytics
As the table on page 2 showed, the fund’s maximum drawdown over the period in question was 22.48 per cent – compared with the 35.60 per cent fall that hit the FTSE All Share in the financial crisis and the 36 per cent maximum drawdown suffered by the average IA UK All Companies fund.
The portfolio is managed using Newton’s global thematic approach that hones in on major areas of change in the world and references them when looking for investment ideas. The investment house has a cautious view on the markets and the global economy.
Newton UK Opportunities is ranked 32nd in the sector for total returns, sixth for annualised volatility and 15th downside capture as well as being the fund with the lowest maximum drawdown of all its peers.
