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The charts showing the UK funds with the decade’s best risk-adjusted returns

17 November 2016

FE Trustnet looks at the funds that have beaten the FTSE All Share while exhibiting lower volatility over the last 10 years.

By Jonathan Jones,

Reporter, FE Trustnet

The last decade has presented its challenges with the financial crisis in 2008 followed by a prolonged period of low interest rates leading to slow and steady growth in the UK market. 

Despite this, the last decade has been more volatile than the previous 10 years, with the FTSE All Share experiencing annualised volatility of 14.06 per cent over the period compared 13.86 per cent between 1996 and 2006.

As the below graph shows, despite a number of events over the last decade such as the financial crisis, Brexit and extremely low interest rates, the index has risen 64.84 per cent.

Performance of indices over 10yrs

 

Source: FE Analytics

Active managers have performed similarly, with the average IA UK All Companies and IA UK Equity Income sectors 1.33 and 3.3 percentage points behind the index respectively.

Having previously looked at the performance of active funds over the last year, in this article FE Trustnet reveals the active funds that have managed to outperform the index over the last 10 years while also exhibiting lower volatility. In an upcoming article we will also look at those funds that have failed on both counts.


 

IA UK All Companies

A total of 31 funds of the 270 in the IA UK All Companies sector, or 8.7 per cent, have beaten the FTSE All Share over the last decade while experiencing lower volatility.

Risk/return over 10yrs

 

Source: FE Analytics – data as at 31/10/16

The least volatile fund with returns in excess of the FTSE All Share over the period is Invesco Perpetual UK Strategic Income, run by FE Alpha Manager Mark Barnett.

The five FE Crown-rated, £888m fund has returned 117.31 per cent to investors over the last decade, beating the All Share by 45.97 percentage points, while seeing annualised volatility of 11.17 per cent, making it the least volatile in the IA UK All Companies sector over the period.

The FTSE All Share saw 14.06 per cent volatility over the period.

The fund, which has a clean ongoing charges figure (OCF) of 0.92 per cent and currently yields 3.31 per cent, is in the top quartile for maximum drawdown – the most an investor would have lost if buying and selling at the worst possible times – and is in the top quartile for performance.

Also exhibiting low volatility over the last decade were the Invesco Perpetual Income and High Income funds, now run by Barnett but formerly headed up by FE Alpha Manager Neil Woodford.

Meanwhile, the five crown-rated Liontrust Special Situations fund, run by FE Alpha Managers Anthony Cross and Julian Fosh has been one of the best performers in the sector.

The £2.1bn fund, which has an OCF of 0.88 per cent and yields 1.90 per cent, has been the second best performer in the sector, returning 209.80 per cent and has been one of the least volatile (13.21 per cent).

Also with high returns is CF Lindsell Train UK Equity, run by Nick Train, who is known high conviction investment style. The £3bn fund is the fourth best performer in the sector, returning 190.51 per cent.


 

IA UK Equity Income

While over the past year no fund in the IA UK Equity Income sector had beaten the FTSE All Share while experiencing lower volatility, looking over a 10-year period shows 17 funds have achieved the feat.

Risk/return over 10yrs

 

Source: FE Analytics – data as at 31/10/16

The biggest outlier of the group is the £3bn Trojan Income fund, run by FE Alpha Manager Francis Brooke, which has been far less volatile while providing much higher returns than the All Share.

The five crown-rated fund has been the second best performer over the last 10 years, returning 124.21 per cent against the FTSE All Share’s 64.84 per cent, while it has had the lowest annualised volatility at 10.08 per cent.

Also experiencing low volatility is the five crown-rated Fidelity Moneybuilder Dividend fund, run by Michael Clark.

The £1.1bn fund has been the third least volatile in the sector (11.97 per cent) but while it has beaten the All Share’s performance (the fund returned 68.87 per cent over the period) it sits in the third quartile of the sector.

Two that are in the top quartile for total returns, however, are the Royal London UK Equity Income and Threadneedle UK Equity Income funds, which are third and fourth respectively over the last decade returning 112.88 and 108.02 per cent.

Richard Colwell’s Threadneedle fund has been less volatile (12.93 per cent) than Martin Cholwill’s Royal London fund (13.99 per cent), though both have been smoother than the FTSE All Share.


 

IA UK Smaller Companies

Of the three UK sectors, IA UK Smaller Companies has the highest success rate against its benchmark, with more than a quarter beating the Numis Smaller Companies ex IT index with lower volatility.

Risk/return over 10yrs

 

Source: FE Analytics – data as at 31/10/16

The fund to beat the index with the lowest volatility is the Liontrust UK Smaller Companies fund, run by FE Alpha Manager Julian Fosh and Anthony Cross.

The five crown-rated fund is the third best performer in the sector over the last 10 years, returning 222.78 per cent compared to the benchmark’s 116.38 per cent.

It has also been the least volatile, with 13.56 per cent compared to the 17.42 per cent seen by the Numis Smaller Companies ex IT index.

Also experiencing low volatility is the £40m Unicorn UK Smaller Companies fund run by Simon Moon, which has been the second least volatile in the sector (14.41 per cent) while beating the benchmark by 15.69 percentage points.

The best performer over the period is the £639m Marlborough UK Micro Cap Growth fund run by FE Alpha Manager Giles Hargreave and co-manager Guy Feld.

The five crown-rated fund has returned 244.50 per cent to investors over the past decade, while it is among the top 10 least volatile over the period (15.92 per cent).

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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.