Liontrust Special Situations, L&G UK Alpha Trust and Franklin UK Mid Cap are among the IA UK All Companies funds to have delivered the highest average five-year returns since the start of the millennium, a study by FE Trustnet shows.
A recent survey by investment research and advisory business Platforum found that average five-year rolling returns are the second most-commonly used metric by UK financial advisers. They come after performance relative to the sector and ahead of the most recent three-year return.
How advisers independently review fund performance
Source: Platforum, January 2017
With this in mind, FE Trustnet has started a new series of galleries focusing on the best performers from the major Investment Association sectors using this measure. To do this we took the rolling five-year total returns over the 49 quarterly periods spanning 1 January 2000 to 31 December 2016 and worked out the average.
In the following gallery we highlight the seven IA UK All Companies funds with highest average rolling five-year gains (of the funds that have been around for at least 25 of the 49 periods) as well as revealing the top 30 according to this metric.
Invesco Perpetual UK Focus
5yr rolling return vs sector and index
Source: FE Analytics
First up with an average rolling five-year total return of 79.97 per cent is the £191.1m Invesco Perpetual UK Focus fund, which has been headed up by FE Alpha Manager Martin Walker since December 2012. The highest five-year return has been 274.43 per cent while the lowest was the 10.14 per cent loss seen at the time of the financial crisis. Walker’s approach pays close attention to the valuation of companies and seeks those that are out of favour with the market. This means the fund currently has its biggest sector weightings to areas like financials and oil & gas, with the top holdings of the concentrated, 35-stock portfolio being BP, Royal Dutch Shell and Barclays. The FE Research team, which has the fund on its FE Invest Approved List, said: “The portfolio changes frequently as the manager is very selective and is quick to sell out of a company if something goes wrong. He has a very good record of adding value through stock-picking.”
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
L&G UK Alpha Trust
5yr rolling return vs sector and index
Source: FE Analytics
Richard Penny has managed the £170.8m L&G UK Alpha Trust since its launch in May 2005. The fund has produced average rolling five-year total return of 83.49 per cent over that time with the highest being 247.25 per cent and the lowest 14.13 per cent. Penny is a value manager who looks for stocks at all parts of the market cap spectrum that he thinks can double in value on a three-year horizon. Its largest holdings are Smart Metering Systems, First Derivatives and Micro Focus International; this preference for technology stocks could due to the manager’s background in engineering. The fund has been more volatile than its average peer and has seen its five-year returns fall into the fourth quartile in more recent periods, given the underperformance of value investing. Nonetheless, it remains a favourite with analysts when looking for funds that could benefit from revival of the value style.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Franklin UK Mid Cap
5yr rolling return vs sector and index
Source: FE Analytics
Next up is the £902.7m Franklin UK Mid Cap fund, which has FE Alpha Manager Paul Spencer at the helm with Mark Hall and Richard Bullas as deputies. The fund has generated a 97.99 per cent average rolling five-year total return over the full 49 periods we looked at. Its biggest five-year return was 234.50 per cent and the lowest was 9.77 per cent. Given its focus on the FTSE 250, which has performed strongly over the long run, Franklin UK Mid Cap is first quartile in the IA UK All Companies sector in each five-year period covered in this research. Spencer’s process can be seen as contrarian as he thinks the market often over-reacts to short-term events and is not afraid to take advantage of that. The portfolio’s biggest positions are in Bodycote, Victrex and Intermediate Capital Group.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Old Mutual UK Mid Cap
5yr rolling return vs sector and index
Source: FE Analytics
Here we have another FTSE 250-focused fund on the list: FE Alpha Manager Richard Watts’ £2.3bn Old Mutual UK Mid Cap fund. This offering has a 104.73 per cent average rolling five-year total return and is top quartile in each of the 40 periods it has a track record for. Its largest gain in this time was 234.50 per cent and the smallest was 10.17 per cent. Watts prefers to invest in companies with sound finances and earnings growth potential. Top among the 50 or so names that have made it into the portfolio are Paysafe Group, Boohoo.com and Ascential.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Liontrust Special Situations
5yr rolling return vs sector and index
Source: FE Analytics
The £2.5bn Liontrust Special Situations fund, which is run by the FE Alpha Manager duo of Anthony Cross and Julian Fosh, has chalked up a 109.21 per cent average rolling five-year total return across the 25 periods it has been in existence. The fund’s biggest five-year return was 229.09 per cent and it still made 53.54 per cent in its weakest period. It is another fund in the top quartile for every period examined by this research. The portfolio is made up of the best ideas of Liontrust UK Smaller Companies and Liontrust UK Growth, which the two managers also oversee. It is managed using their ‘Economic Advantage’ process, which hones in on stocks possessing characteristics that rivals find difficult to replicate, such as intellectual property, strong distribution channels and significant recurring business. Liontrust Special Situations’ top holdings are Diageo. Unilever and RELX Group.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
MFM Slater Growth
5yr rolling return vs sector and index
Source: FE Analytics
This £398.2m fund is headed up by FE Alpha Manager Mark Slater and has made a 122.88 per cent average rolling five-year return since launch. The highest was 317.80 per cent and the lowest was 47.03 per cent. Slater looks for businesses that have the potential to grow regardless of the economic environment and currently counts Hutchison China Meditech, First Derivatives and CVS Group as MFM Slater Growth's largest positions. The FE Research team said: “Slater has extensive experience with growth stocks and he helped build the stock-selection tool used in his investment process. This background has proved invaluable to him, as shown by the performance of the fund relative to the FTSE All Share and smaller company indices.”
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Standard Life Investments UK Equity Unconstrained
5yr rolling return vs sector and index
Source: FE Analytics
The £737.1m Standard Life Investments UK Equity Unconstrained fund tops the list with an average rolling five-year total return of 125.32 per cent. The highest five-year gain was 383.11 per cent while the lowest was 21.74 per cent. The portfolio has been managed by Wesley McCoy since June 2015 although McCoy was the manager who launched the fund in 2005 and ran it for the first three years. As its name suggests, Standard Life Investments UK Equity Unconstrained pays little regard to the index and is based around the manager’s best ideas. The underlying process is based on Standard Life Investments’ Focus on Change philosophy, which is based on the premise than the market is inefficient at valuing companies going through a period of change. Its top holdings are Crest Nicholson, Redrow and SuperGroup.
Cumulative return to 31 Dec 2016 vs sector and index
Source: FE Analytics
Source: FE Analytics