Fidelity Special Situations, Investec UK Special Situations and CF Lindsell Train UK Equity are some of the IA UK All Companies funds that have consistently avoided making losses over three-year periods, research by FE Trustnet shows.
Our study – which looked at the rolling three-year returns over 60 quarterly periods starting 1 April 1999 to 31 March 2002 and ending 1 January 2013 to 31 December 2016 – also found that exiles from the IA UK Equity Income sector have similarly strong track records in dodging losses.
While short-term losses are unavoidable when investing, most experts say that holding on for longer periods will result in any falls being made up and – hopefully – the investor making a healthy return. With this in mind, we looked at the IA UK All Companies to find out if any funds have been able to bounce back from all market falls within three years.
Rolling 3yr returns of sector vs index over 60 quarterly periods
Source: FE Analytics
Our data shows that the FTSE All Share has been in negative territory for 18 of the 60 quarterly periods, or 30 per cent of the time. The biggest three-year loss was made between 1 April 2000 and 31 March 2003, when it was down 39.35 per cent after the bursting of the dotcom bubble (the index rebounded from the 2007 financial crisis quicker than the tech crash, with the biggest three-year loss then standing at 27.53 per cent).
When it comes to UK growth funds, the average IA UK All Companies member has a slightly worse track record than the FTSE All Share: it made a loss in 19 of the 60 three-year periods (or 32 per cent of the time). The biggest loss took place during the same period as the index but was a little higher at 39.93 per cent.
However, within the sector there are a number of funds that have significantly outperformed both the index and their average peer for three-year losses. Some 95 funds have a long enough track record to cover the full 60 periods we looked at; while none have avoided a loss in each of these three-year periods, a handful have come very close.
Among these 95 IA UK All Companies funds, the number of three-year periods when losses were seen ranges from just four through to 23. In all, 36 funds have fewer loss-making periods than the FTSE All Share but the below table reveals those with 10 or fewer negative periods.
Source: FE Analytics
It’s the £2.9bn Fidelity Special Situations fund that holds the top spot, having only seen four three-year periods when it was in the red, all around the time of the global financial crisis. Over this time, the fund has had three managers: Anthony Bolton, Sanjeev Shah and current manager Alex Wright.
The fund has made a 644.70 per cent total return over the full time frame examined in this research (1 April 1999 to 31 December 2016). In contrast, the FTSE All Share has risen 139.66 per cent while the average IA UK All Companies funds has made 140.51 per cent.
Performance of fund vs sector and index between 1 Apr 1999 to 31 Dec 2016
Source: FE Analytics
Fidelity Special Situations takes a value approach to investing, looking for unloved business that have the potential for a turnaround in their fortunes. Although the value style has suffered over recent years, it has witnessed something of a rebound in the past few months.
In fact, several of the funds highlighted in the table on the previous page fit into the value category: Schroder Recovery, GAM UK Diversified and Investec UK Special Situations all take this approach to investing.
Furthermore, many of the funds on that list have an income mandate and are former members of the IA UK Equity Income sector, having only moved over to IA UK All Companies for failing to meet the yield target. These include Schroder Income, Invesco Perpetual High Income, Invesco Perpetual Income and Rathbone Income.
To increase the number of younger funds in the study, we also re-ran the numbers to look at the 30 most recent three-year periods – giving us 194 funds to look at.
Over this timeframe, the FTSE All Share and the average IA UK All Companies fund has gone through five negative three-year timespans. Our data shows that 80 funds have a better track record than that and four – revealed in the below table – have never been in the red for a three-year period.
Source: FE Analytics
Many of the funds mentioned earlier in the article are high up over this time frame as well.
Fidelity Special Situations, Schroder Income, Schroder Recovery and Investec UK Special Situations, for example, only have one negative period each.
However, GAM UK Diversified is in line with the index with five negative periods while Invesco Perpetual High Income, Invesco Perpetual Income and Rathbone Income lag with six three-year periods in the red.