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The smaller, steadier UK equity funds winning the race

01 March 2017

FE Trustnet looks at the funds in the IA UK All Companies sector that have maintained consistently low drawdowns and steady returns over the last five years and are less than £500m in size.

By Lauren Mason,

Senior reporter, FE Trustnet

CFP SDL UK Buffettology, Threadneedle UK Growth & Income and JPM UK Equity Growth are among some of the funds in the IA UK All Companies sector that have achieved strong, steady returns over five years and are less than £500m in size, according to research from FE Trustnet.

This comes following recent concerns that market valuations are historically high and, given the geopolitical uncertainty on the horizon, could see a fall from grace at some point this year.

In an article published last week, Brooks MacDonald’s Niall O’ Connor warned that now could be a good time to defensively position portfolios and that 2017 is not a year to take big market bets.

“A 15 per cent drawdown in markets wouldn’t be inconceivable and I think it would be quite easy to post-rationalise a drawdown of this size, given all of the good news would have been priced in and some bad news could set this off-balance,” he said.

For investors who are worried about the ‘known unknowns’ that Brexit could bring but want to retain exposure to their home market, we took a look under the bonnet of the IA UK All Companies sector to find the nimble funds with the steadiest returns over five years.

To do this, we created a list of funds in the sector that have a performance track record of at least five years and are less than £500m in size.

We ranked them in terms of decile relative to their average peer for their annualised returns and maximum drawdowns over the last five years to the end of January 2017.

With one representing the top decile and 10 representing the bottom, we then calculated the average decile each fund fell into for the combined aforementioned metrics and gave them an overall score, focusing on the vehicles that achieved an average decile of four or less.

The resultant list of funds and their scores is as follows although, as ever, investors should note that past performance is no guide to future returns.

 

Source: FE Analytics

The winner with an overall average decile of 3.2 is the five crown-rated CFP SDL UK Buffettology fund, which has been headed up by FE Alpha Manager Keith Ashworth-Lord (pictured) since its launch in 2011.

The £81.8m fund averaged a decile ranking of 2.6 for its five-year annualised returns and a 3.8 decile ranking for its annualised maximum drawdowns over five years to the end of January.

When it comes to its overall performance over this time frame, the fund has comfortably doubled its average peer with a total return of 148.42 per cent and has a drawdown of 6.73 per cent, compared to its sector average’s drawdown of 10.81 per cent.

The fund aims to achieve an annual compounding rate of return which, over five-to-10 years, outperforms the UK stock market. As its name suggests, the fund adopts a similar investment philosophy to legendary investor Warren Buffett.

With a concentrated portfolio of 29 holdings, the fund’s largest individual weightings include the likes of adhesive tape manufacturer Scapa, aerial work platform provider Lavendon and intellectual property translator RWS Holdings.


Next on the list with an average decile ranking of 3.4 is Richard Colwell’s four crown-rated Threadneedle UK Growth & Income fund, which is £403.4m in size and has a 45-stock portfolio.

It has an average decile of 4.2 for its annualised five-year returns and 2.6 for its annualised five-year maximum drawdowns.

The fund, which also has a top-decile downside risk ratio over this time frame, aims for an optimal balance of growth and income to maximise total return, and does so through attractive companies that have fallen out of favour over the short term. Its three largest holdings are currently GlaxoSmithKline, AstraZeneca and Royal Dutch Shell.

Over five years, Colwell’s fund has achieved a total return of 79.5 per cent compared to its sector average and benchmark’s respective returns of 59.09 and 54.13 per cent. Had an investors placed £10,000 into this fund five years ago, they would have received £2,151.23 in income alone.

Performance of fund vs sector and benchmark over 5yrs

 

Source: FE Analytics

JPM UK Equity Growth is hot on its heels with an average decile ranking of 3.5, as a result of its annualised average decile for returns of four and its average maximum drawdown decile of three over five years to the end of January.

Launched at the end of 2008, the four crown-rated fund is £244.2m in size and has been headed up by Ben Stapley since 2010 (Stapley was joined by co-manager Kyle Williams last year).

The fund aims to provide long-term growth through a portfolio of predominantly large-cap stocks such as British American Tobacco, Royal Dutch Shell and AstraZeneca.

It has achieved a top-quartile total return of 82.93 per cent over the last five years, outperforming its sector average and benchmark by a respective 24.6 and 28.8 percentage points. It is also in the top quartile for its maximum drawdown and Sharpe ratio – which measures risk-adjusted returns – over this time frame.


Next on the list with an average decile ranking of 3.7 is Threadneedle UK Overseas Earnings, which has an average annualised ranking of 4.4 for its returns and three for its maximum drawdown over five years to the end of January.

That said, investors should note that Jeremy Smith only took to the helm of the fund at the end of 2015, following the retirement of former manager Leigh Harrison.

Over Smith’s tenure, the four crown-rated fund has achieved a top-quartile total return of 18.12 per cent compared to its average’s peers return of 12.98 per cent and its FTSE All Share benchmark’s return of 17.53 per cent. It is also in the top decile for its downside risk, maximum drawdown, Sharpe ratio and annualised volatility over the same time frame.

Performance of fund vs sector and benchmark under Smith

 

Source: FE Analytics

The fund, which is £114.2m in size, is not restricted by index or company size, but will invest at least two-thirds of its assets in UK companies that achieve more than half of their earnings from overseas. Its largest holdings are Royal Dutch Shell, GlaxoSmithKline and AstraZeneca.

Other funds that deserve an honourable mention for being both steady and nimble over the last few years include Fidelity UK Opportunities, Henderson Global Care UK Income and Old Mutual Equity 1.

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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.