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The UK value funds that have kept you safest over the last decade

15 November 2016

FE Trustnet looks at the value funds in the IA UK All Companies sector that have provided the steadiest returns compared to their peers over each of the last 10 years.

By Lauren Mason,

Senior reporter, FE Trustnet

Liontrust Special Situations, Jupiter UK Special Situations and Investec UK Special Situations are among the UK value funds to have scored the best risk metrics over the last decade, according to research from FE Trustnet.

The value versus growth debate has reared its head again in recent months, after the value style rallied hard in 2016 following several years of underperformance against their growth counterparts.

In an article published last week, FE Alpha Manager Stuart Mitchell warned that managers holding defensive/growth stocks could find themselves in hot water, given that inflation is likely to keep rising.

“My guess is that people who have done quite well recently will receive a nasty surprise, it will be a very different market from what they might think. And they’ll dismiss it as just the junk rising and all that kind of thing. But of course, with a bit of inflation in the economy, the junk becomes the great stocks,” he said.

However, by their very nature value stocks are often higher risk, given that companies undergoing structural reforms or challenging periods don’t always recover.

Performance of indices since start of data

 

Source: FE Analytics

As such, some investors may wish to switch out of growth funds while maintaining a defensive portfolio. FE Trustnet has taken a look at all the value-focused funds within the IA UK All Companies sector with a track record spanning over more than a decade.

Out of these 11 funds, we compared their annualised volatility, maximum drawdown, risk-adjusted returns through the Sharpe ratio and downside risk to their sector average over one-year periods spanning the decade to the end of October 2016.

We then tallied up the number of years each fund was in the top quartile for each metric and generated a score for each fund out of 40 (40 being if a fund were top-quartile for all four metrics over every period). The scores are listed in the below table:

Fund name  Score (/40)
Liontrust Special Situations 31
Jupiter UK Special Situations 23
Investec UK Special Situations 20
Artemis UK Special Situations 19
MFM Slater Recovery 19
Schroder Specialist Value UK Equity 11
Fidelity Special Situations 9
M&G Recovery  8
BlackRock UK Special Situations 7
Schroder Recovery 6
Halifax Special Situations 3
Dimensional UK Value 0

Source: FE Analytics

The overall winner is the five crown-rated Liontrust Special Situations fund, which is headed up by FE Alpha Manager duo Anthony Cross (pictured) and Julian Fosh.

The £2.1bn fund scored highest on its Sharpe ratio, maximum drawdown and downside risk ratios, as it was in the top-quartile for each of these during eight out of the last ten years. It also achieved the highest number of top-quartile periods for its annualised volatility, scoring seven out of 10 for this.

The fund aims to provide capital growth in excess of the FTSE All Share over rolling three-year periods and does so through the managers’ Economic Advantage process. This involves choosing companies with characteristics they deem to be difficult to replicate, such as having intellectual property, strong distribution channels and significant recurring business.

Over 10 years, Liontrust Special Situations has comfortably tripled both its sector average and benchmark’s performances with a total return of 212.62 per cent.

Performance of fund vs sector and benchmark over 10yrs

 

Source: FE Analytics

The fund with the second-highest total score is Jupiter UK Special Situations, which has been managed by Ben Whitmore for 10 years.


It scored 23, having achieved a five for its downside risk, a six for its maximum drawdown, a five for its Sharpe ratio and a six for its volatility.

The £1.4bn fund aims to invest in companies the manager deems to be undervalued and currently holds the likes of BP, Aviva and HSBC in its top 10 holdings out of a portfolio of 40 stocks.

Over Whitmore’s tenure, the three crown-rated fund has returned 138.76 per cent compared to its sector average’s return of 65.44 per cent and its benchmark’s return of 69.79 per cent.

When it comes to individual metrics, Liontrust Special Situations fell into the top spot for each and Jupiter Special Situations came either second or joint-second for its maximum drawdown, Sharpe ratio and annualised.

In joint second place for their downside risk though is Artemis UK Special Situations and Investec UK Special Situations, which have both been in the top quartile for this risk metric six times over the last decade.

The former has been managed by FE Alpha Manager Derek Stuart since the turn of the millennium. It overall score is 19, given that it scored a three on maximum drawdown, a five on its Sharpe ratio and a five on its annualised volatility.

The manager looks for businesses in the early stages of recovery which are just starting to fix their problems, having recognised their balance sheets are overstretched and that management technique needs to change. Stuart often looks for companies that have been taken over by new managers with a good long-term reputation.

Over 10 years, the fund has returned 83.84 per cent, outperforming its sector average and benchmark by 20.41 and 16.52 percentage points respectively.

Investec UK Special Situations is managed by Alastair Mundy, who is well-known for his deep value approach to stock selection. The manager aims to avoid short-term noise and adopts a very long-term time horizon, often buying into some of the most hated stocks in the market. His largest holdings include the likes of Royal Dutch Shell, Barclays and Tesco.


Over the last decade, the fund has returned 88.29 per cent, comfortably outperforming both its average peer and its benchmark.

Performance of fund vs sector and benchmark over 10yrs

 

Source: FE Analytics

Not only has it achieved second place for its downside risk in our study, it is also second place – alongside Jupiter Special Situations - for its annualised volatility over each of the last 10 years. Its overall score takes the fund to third place in our study at 20 points.

While a number of value funds have indeed done well in terms of their risk metrics versus their peers in the broader IA UK All Companies sector, the study also highlights those that have endured more of a rough ride.

Dimensional UK Value didn’t score a single point while Halifax Special Situations scored just three, having been top quartile once for its downside risk and twice for its annualised volatility.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.