The past decade has been difficult for active managers, with almost half of the funds in the IA UK All Companies sector and a quarter of the funds in the IA UK Equity Income sector underperforming the FTSE All Share. 
With many of the largest constituents of the market including consumer staples and other ‘expensive defensives’ such as tobacco stocks outperforming on the back of loose monetary policy, the market has delivered strong returns.
However, active managers have struggled to outperform on average, as the UK economy has been growing at a relatively sluggish pace since the financial crash of 2008.
FE Analytics shows that both UK sectors have underperformed the market over the last decade, as the below graph shows.
Performance of indices over 10yrs
Source: FE Analytics
The FTSE All Share has returned 65.22 per cent over the last 10 years, marginally beating the average fund in the IA UK All Companies (63.60 per cent) and IA UK Equity (61.15 per cent) sectors.
Having previously looked at the performance of active funds over one year, and the top performing funds over 10 years, in this article FE Trustnet finishes its series by looking at the active funds which have failed to outperform the FTSE All Share over the last decade whilst also being more volatile.
IA UK All Companies
Around 90 of the 194 qualifying funds in the IA All Companies sector have underperformed the FTSE All Share (65.22 per cent), with almost all doing so with more volatility (14.06 per cent).
Risk/return over 10yrs
Source: FE Analytics - data as at 31/10/16
Of the most notable underperformers, Dimensional UK Value is among the largest with £516.6m in assets under management. The fund has been the third worst performer in the sector, returning 11.11 per cent as value has taken a battering in recent years.
While the investment style has had a resurgence in 2016, over the last decade growth has been a clear winner making the investment style particularly out of favour among investors.
Also underperforming the FTSE All share while being more volatile is the £114.7m Standard Life Investments UK Opportunities fund, which focuses on small and medium-sized companies.
The fund has returned 39 per cent to investors over the period while experiencing 19.31 per cent volatility (fourth quartile in the IA UK All Companies sector in both categories).
Henderson UK Strategic Income rounds out the three grouped most closely together, with 18.69 per cent volatility over the last decade and returns of 13.35 per cent.
The worst performer in the sector over the last decade, however, has been the £139.9m Aviva Investors UK Equity MoM 2 fund, which has lost 23.75 per cent over the period, while it is in the bottom quartile for volatility experienced (16.55 per cent).
The other outlier to the top-right of the graph is the Schroder UK Mid 250 fund, which has returned a similar amount to the FTSE All Share but has been significantly more volatile.
However, the £1.1bn fund, which as the name suggests is focused on the mid-cap space, is benchmarked against the FTSE 250 and over the period has underperformed its index by 49.37 percentage points.
IA UK Equity Income
Of the 46 qualifying funds in the IA UK Equity Income sector, more than 20 per cent have underperformed the index while exhibiting higher volatility.
Risk/return over 10yrs
Source: FE Analytics - data as at 31/10/16
The most volatile fund over the last 10 years has been the £123m Man GLG UK Income fund, which has returned 39.33 per cent over the period while experiencing 15.95 per cent volatility. Since FE Alpha Manager Henry Dixon took over the fund in November 2013, however, it has made a higher return than the All Share, albeit with more volatility.
The fund currently yields 4.97 per cent and has large weightings to financials (26.23 per cent) and miners (13 per cent) in its portfolio.
The worst performer, however, has been the £601m Scottish Widows UK Equity Income fund, which has returned 15.58 per cent to investors over the period, 49.64 percentage points below the FTSE All Share.
The fund, which aims to deliver return, before deduction of management fees, in excess of the index with a similar level of overall volatility, has also been more volatile (14.65 per cent).
Elsewhere, the five crown-rated £228m AXA Framlington Monthly Income, run by George Luckraft, has underperformed, returning 20.52 per cent to investors, while experiencing an identical amount of volatility to the index.
Also underperforming is the £19m Castlefield B.E.S.T Income fund, which has returned 18.8 per cent to investors with volatility of 14.33 per cent.
It's important to note that the fund had a major change of mandate in July 2012 when current manager Simon Holman took over, which involved a rebasing of the targeted yield, a switch to quarterly payments instead of monthly and from an unconstrained mandate to an ethical remit.
IA UK Smaller Companies
Around 22 per cent of the qualifying funds in the IA UK Smaller Companies sector have underperformed the Numis Smaller Companies ex IT index whilst experiencing higher volatility.
Risk/return over 10yrs
Source: FE Analytics - data as at 31/10/16
The most volatile in the sector has been the £282m Franklin UK Smaller Companies fund. This is another fund that has had a manager change over the period in question and is now run by FE Alpha Manager Paul Spencer, Richard Bullas and Mark Hall.
The fund, which aims to beat the index over the long term has returned 66.38 per cent over the last decade, 52.08 percentage points behind the benchmark (118.46 per cent) with volatility of 19.53 per cent (Numis - 17.42 per cent).
Next most volatile is the JPM UK Smaller Companies fund, which has seen 19.36 per cent volatility while returning 72.08 per cent to investors over the period.
Meanwhile, the Scottish Widows UK Smaller Companies fund has been a worse performer over the last 10 years to 22 November 2016, returning 63.82 per cent. It experienced volatility of 17.64 per cent.
The closest to the benchmark is the AXA Framlington UK Smaller Companies fund, run by Dan Harlow, which up to the end of October was 64 basis points behind the index with 9 basis points more volatility.
However, in the 10 years to 22 November, the fund has outperformed the index, representing a strong few weeks. Harlow said: “This remains a challenging, fast-moving and uncertain macroeconomic environment and as investors we need to be alert to both the threats and the opportunities that this will present.”