Fidelity Special Situations, AXA Framlington UK Select Opportunities and Invesco Perpetual Income are among the funds that have persistently churned out returns strong enough to keep them in the top deciles of the IA UK All Companies sector, according to research by FE Trustnet.
2016 has been a difficult one for active managers, with the average fund in the IA UK All Companies sector returning just 6.77 per cent – against a 12.56 per cent total return from the FTSE All Share.
Over the longer run, it also appears that the average UK manager has struggled to add value relative to the index. FE Analytics shows that the IA UK All Companies sector made a total return of 80.66 per cent between the start of 2000 and the end of June 2016 (the period that will be covered in this study).
In contrast, the FTSE All Share’s total return over this period was higher at 88.08 per cent. What’s more, the average active fund has been a little more volatile than the index and suffered a slightly higher maximum drawdown.
Performance of sector vs index since 1 Jan 2000
Source: FE Analytics
There are funds that have beaten the index by a wide margin over this period – the best performer, for example, has made close to 400 per cent. It must be noted, however, that some members of the sector haven’t even broken into double-digit territory.
While sector rankings are not the same as outperformance of an index, in this research we identified the funds that have consistently sat in the upper deciles over rolling three-year periods.
To do this, we look at funds’ three-year returns on a quarterly basis over the period spanning 1 January 2000 through to 30 June 2016 (a total of 55 three-year periods) then worked out the average decile ranking.
The table below shows the 20 funds that have the most consistent record of outperformance over their peers for the full period examined, along with their total return.
Only the funds with a track record spanning back to 1 January 2000 have been included in this list but we highlight some consistent outperformers with shorter histories later in the article.
| IA UK All Companies funds’ average 3yr decile rank and total return between 1 Jan 2000 and 30 Jun 2016 | ||
| Fund | Average decile | Total return |
| Marlborough UK Multi-Cap Growth | 2.47 | 228.77% |
| Schroder Recovery | 2.84 | 363.98% |
| Invesco Perpetual High Income | 2.89 | 366.06% |
| Invesco Perpetual Income | 3.00 | 364.88% |
| Fidelity Special Situations | 3.09 | 392.44% |
| AXA Framlington UK Select Opportunities | 3.09 | 178.99% |
| Invesco Perpetual UK Strategic Income | 3.11 | 250.21% |
| BlackRock UK Special Situations | 3.33 | 244.57% |
| Standard Life Investments UK Equity High Alpha | 3.35 | 154.69% |
| Cavendish Opportunities | 3.60 | 288.88% |
| Schroder UK Opportunities | 3.67 | 162.72% |
| Schroder Income | 3.89 | 239.44% |
| Investec UK Alpha | 3.91 | 196.63% |
| Investec UK Special Situations | 4.04 | 205.73% |
| Franklin UK Rising Dividends | 4.07 | 171.91% |
| GAM UK Diversified | 4.15 | 331.51% |
| Jupiter UK Growth | 4.20 | 149.62% |
| Henderson UK Equity Income & Growth | 4.20 | 133.28% |
| M&G Recovery | 4.29 | 117.40% |
| Rathbone Income | 4.33 | 281.23% |
| IA UK All Companies sector average | - | 80.66% |
| FTSE All Share | - | 88.08% |
Source: FE Analytics
As can be seen from the table, it’s FE Alpha Manager Richard Hallett’s £119.2m Marlborough UK Multi-Cap Growth fund that has the most consistent top decile performance – with an average of 2.47 for the 55 three-year periods we look at.
The name suggests the fund’s investment mandate: it aims for medium- to long-term capital growth through a portfolio of UK stocks built from all parts of the market-cap spectrum.
Like all the funds on the list, it has outperformed the FTSE All Share by a very comfortable margin – some 140 percentage points. While it has been more volatile than the index, it has given investors a lower maximum drawdown and maximum loss, along with delivering a higher maximum gain.
Performance of fund vs sector and index between 1 Jan 2000 and 30 Jun 2016
Source: FE Analytics
The table also shows how recovery and value funds have been successful in achieving upper decile performance over rolling three-year periods.
Schroder Recovery is second on the list with an average three-year decile ranking of 2.84, with Fidelity Special Situations (3.09 average), BlackRock UK Special Situations (3.33 average), Cavendish Opportunities (3.60 average) and Investec UK Special Situations (4.04 per cent).
M&G Recovery also appears here with an average decile ranking of 4.29, as its very strong performance in the early two-thirds of the period offset the bottom-decile rankings that have hit the fund since the financial crisis.
Several of the exiles from the IA UK Equity Income sector are found in the table – Invesco Perpetual’s three flagship funds, Schroder Income and Rathbone Income among them. It must be remembered that for the bulk of the period covered, they would have resided in their former peer group.
All the funds highlighted so far have a track record that goes back to the start of 2000 but there are some younger funds that have achieved consistent upper decile returns, albeit over fewer rolling three-year periods.
As might be expected, a number of these focus on mid-caps and have benefitted from the strong growth in this part of the market. Old Mutual UK Mid Cap, Threadneedle UK Mid 250 and Neptune UK Mid Cap have all been at the top of the sector across their lifespan.
Performance of funds vs sector and index between 1 Jan 2000 and 30 Jun 2016
Source: FE Analytics
The chart above shows younger funds such as CF Lindsell Train UK Equity (average three-year decile ranking of 1.25), Liontrust Special Situations (1.97 average) and Majedie UK Focus (2.33 average) that have also performed strongly in the research.
At the other end of the spectrum, however, are a number of funds that have consistently languished in the lower deciles of the sector.
These include some that have rallied hard in 2016 but have less attractive long-term track records, such as Halifax Special Situations (9.57 average), IFSL Trade Union Unit Trust (9.09 average) and UBS UK Opportunities (8.98 average).