CF Lindsell Train UK Equity, Evenlode Income and Trojan Income are among the select few UK funds to have witnessed inflows over recent months, according to data from FE Analytics, despite record outflows from the sector after the shock EU referendum result. 
Though UK equities have made significant gains since the UK voted to quit the EU in late June thanks to sterling weakness and added liquidity from the Bank of England, it is clear that sentiment is far from positive towards the domestic market.
Indeed, data released from the Investment Association shows outflows from UK equity funds from UK investors reached £2bn over the past two months, with the IA UK All Companies sector the worst selling sector in July with net retail redemptions of £917m.
While this data suggests investors are capitulating on UK equities, FE Analytics shows that some have used the uncertainty to add to their domestic exposure.
Unsurprisingly, only a small proportion of funds within the IA UK All Companies and IA UK Equity Income sectors have experienced inflows over recent times as there has been a general trend of investors looking to ‘de-risk’ their portfolios – as shown by the fact that the IA Targeted Absolute Return, IA Short Term Money Market and IA Sterling Strategic Bond sectors were among the best-selling peer groups in July.
In fact, just 25 per cent of UK funds have witnessed inflows of more than £1m over the past three months – which includes the uncertainty in the build-up to the referendum and the subsequent ‘flight to safety’ when the Leave camp proved victorious.
The 10 most bought UK equity funds over 3 months
Source: FE Analytics
Nevertheless, when you look at the funds that have attracted the most cash over recent moments, a clear trend emerges: the large majority have outperformed over recent times with low levels of volatility and small drawdowns.
For example, the UK equity portfolio that has attracted the largest inflows (£366.7m) over the past three months has been FE Alpha Manager Nick Train’s CF Lindsell Train UK Equity fund.
Train runs a highly concentrated portfolio of high quality companies with reliable earnings and strong franchises, which means his largest positions are in companies that are genuinely multinational like Unilever and Diageo.
Focusing on these sorts of stocks has been very prudent strategy over recent years owing to the lack of global growth and very loose monetary policy from the world’s central banks.
According to FE Analytics, the now £2.7bn fund has been a top quartile performer and beaten the FTSE All Share in every calendar year since 2008.
Therefore, not only has the fund been a top decile performer in total return terms since its launch in July 2006, but it has been top decile for its maximum drawdown, annualised volatility and risk-adjusted returns (as measured by the Sharpe ratio) over that time.
Performance of fund versus sector and index since launch
Source: FE Analytics
The fund is also outperforming once again this year thanks to the fact that many of the companies in CF Lindsell Train UK Equity generate their earnings from outside of the UK and have therefore benefitted from sterling’s plunge in value.
It’s a very similar story with the second most bought UK equity fund over the past few months – Evenlode Income.
Like Train, managers Hugh Yarrow and Ben Peters focus on high quality businesses that have next to no leverage and have a good track record of growing their dividend. As such, and again like Train, they have a high weighting to global-facing consumer staples.
The five crown-rated Evenlode Income fund – which now sits in the IA UK All Companies sector having been removed from the IA UK Equity Income sector for failing to meet the required yield target – counts the likes of Diageo, Unilever, Johnson & Johnson and Procter & Gamble as top 10 holdings, for example.
It is currently 7 percentage points ahead of the FTSE All Share in 2016 and has beaten the index in every calendar year since launch in 2009, whilst being considerably less volatile and exposing investors to far fewer negative monthly periods than the wider UK market.
The other IA UK All Companies funds to have captured the most inflows include Majedie UK Equity and GAM UK Diversified – both of which have performed well in terms of capital preservation – while FE Alpha Manager Francis Brooke’s Trojan Income fund has been the best-selling member of the IA UK Equity Income sector.
Brooke has attracted a large following thanks to his focus on protecting capital and delivering dividend growth – two aspects which have made his £2.9bn fund one of the most consistent outperformers in its peer group over recent times.
This trend is highlighted further when you group the list of best-selling funds together in an equally weighted portfolio.
Performance of best-selling UK funds versus index over three years
Source: FE Analytics
According to FE Analytics, that portfolio has beaten the FTSE All Share by 10 percentage points over three years but has down so with a maximum drawdown which is 2 percentage points lower, an annualised volatility that is 3 percentage points lower and risk-adjusted returns that are twice as great as the index.
As such, the composite portfolio has had a downside capture ratio of 77.15 per cent over three years (meaning it has only exposed investors to 77.15 per cent of the index’s falls over that time).
When you look at the UK funds that have witnessed the largest outflows over the past three months, no real trend emerges except the fact they are among the largest in the two peer groups by size.
As such, they have most likely suffered the redemptions due to a general asset allocation switch rather than due to fund specific issues – except potentially in the case of the now £6.3bn Artemis Income fund (which has had outflows of £542m) following the departure of co-manager Adrian Gosden.
The 10 most sold UK equity funds over 3 months
Source: FE Analytics
The other most sold UK equity portfolios over the past three months includes the £11.6bn Invesco Perpetual High Income fund and the £7.1bn Scottish Widows UK All Share Tracker fund with the average AUM across those 10 funds standing at more than £4bn.