Only one fund in the IA UK All Companies and UK Equity Income sectors has outperformed the FTSE 100 and relevant sector average while scoring a high performance correlation figure to the index. 
Overall, the average UK fund has an r2 figure to the FTSE 100 of 0.65 and 0.72 to the FTSE 250, meaning most funds’ outperformance can be explained by a higher correlation to mid-caps, which have performed exceptionally well over the last five years.
Indeed, the FTSE 250 has outperformed the large-cap FTSE 100 index by 50.65 percentage points over the last half-decade, as the below graph shows.
Performance of indices over 5yrs
Source: FE Analytics
R2 represents the percentage of a fund portfolio's movements that can be explained by movements in a benchmark index – i.e. how correlated its performance is to the benchmark. Having looked at all UK funds previously, and at the mid-cap space, in this article FE Trustnet looks at the all-cap funds with high exposure to large-caps.
For this study we looked at the top 10 per cent of funds with the highest r2 scores against the FTSE 100 and a score against the FTSE 250 of less than 0.65.
Of the 10 eligible funds, only one – Franklin UK Equity Income – has outperformed both the FTSE 100 and its IA UK Equity Income sector over the last five years.
Mark Dampier, head of research at Hargreaves Lansdown, said: “The FTSE 100 is a ridiculous index to try and beat. You’ve got the top 10 stocks that are 50 per cent or something so you’ve got a huge concentration of really big stocks. To try and go overweight if you were that keen would probably put you in breach of the unit trust rules.”
“That’s a major problem and actually the better value is at the bottom end of the FTSE if anything,” he added.
This makes the five-crown rated fund’s performance all the more impressive as it has returned 90.61 per cent over the last five years, 13.01 and 30.97 percentage points ahead of the sector and FTSE 100 respectively.
Performance of fund vs sector and FTSE 100 over 5yrs
Source: FE Analytics
Franklin UK Equity Income is run by Colin Morton as well as deputy managers Ben Russon (who is also an FE Alpha Manager) and Mark Hall.
This places the fund in the second quartile over five years, though over both three and 10-year timeframes it is in the top quartile of the IA UK Equity Income sector.
The fund, which has an r2 figure to the FTSE 100 of 0.87 and 0.64 to the FTSE 250, is most overweight utilities compared to its FTSE All Share benchmark.
The fund includes FTSE 100 stalwarts Shell, British American Tobacco, HSBC, Unilever and BP in its top 10 holdings (19.57 per cent).
The £383.5m fund has a 38.9 per cent weighting to companies with a market capitalisation of £50bn or higher, while only 10.71 per cent is invested in companies with a market cap of less than £2bn.
The fund has a yield of 3.7 per cent and a clean ongoing charges figure of 0.54 per cent.
It is the only fund to be able to outperform the FTSE 100 and the respective sector while not relying on mid-caps, showing the importance the medium-sized company outperformance has had on funds in the UK over the last half-decade.
The next best performer is Aberdeen Responsible UK Equity, which has returned 63.02 per cent over the last five years, beating the FTSE 100 by 3.38 percentage points.
Performance of fund vs sector and FTSE 100 over 5yrs
Source: FE Analytics
The £23.9m fund, which is in the top quartile over one year but is a bottom quartile performer over five and 10 years, uses fundamental company analysis with environment, social and governance criteria also taken into account.
The fund, which has an r2 figure to the FTSE 100 of 0.85 and 0.63 to the FTSE 250, has a yield of 2.2 per cent and an OCF of 0.89 per cent.
The other funds to outperform the FTSE 100 with a high r2 rating to the FTSE 100 low score against the FTSE 250 are MFS Meridian UK Equity and Aberdeen UK Equity Income.
Both funds are bottom quartile in the IA UK All Companies and IA UK Equity Income sectors respectively though the Meridian fund is ahead over 10 years.
Performance of funds vs sectors and FTSE 100 over 5yrs
Source: FE Analytics
The £73m fund run by Christopher Jennings, Victoria Higley and Gabrielle Gourgey has an OCF of 1 per cent.
Hargreaves Lansdown’s Dampier says this unpredictability in performance suggests investors should look at passive options for FTSE 100 exposure.
All of the above funds except Franklin UK Equity Income are in the bottom quartile of their respective sectors and five other funds with a high r2 figure to the FTSE 100 and a low score to the FTSE 250 have underperformed the large-cap index over the last five years. This again suggest that the bulk of UK equity funds’ returns in recent years have come from mid-caps.
“Those [FTSE 100] companies tend to be more macro driven – look at Shell for example last year it was up 64 per cent because the oil price went up and that is a macro not a company reason – it’s not something you can unearth at their headquarters,” Dampier said.
“So they’re much more macro orientated than the mid- and smaller-cap which is more to do with stockpicking.
“What we suggest is that trying to formulate macro views is all well and good and they give you column inches but most of the time it’s a waste of time because people get those trends wrong.
“Asset allocations driven by macro are remarkably difficult to get right and therefore in truth if you said you wanted FTSE exposure I would tell you to by a passive fund – I wouldn’t bother to look at anything else.”