Last year’s rally in value stocks presented such challenging conditions for fund managers that only five funds from the two main UK equity sector were able to outperform the value style, data from FE Analytics shows.
While the growth style of investing had led the market for the bulk of the post-crisis period, value came back strong in 2016 thanks to rallying commodity prices, the likelihood of a reflationary trend and improving investor sentiment. This was seen on the global stage but affected the UK market as well.
Over the five years to the end of 2015, the MSCI United Kingdom Growth index was ahead of MSCI United Kingdom Value by around 10 percentage points after rising 34.21 per cent. However, as the chart below shows, things reversed in 2016 and value outperformed growth, leaving the average UK fund behind as a consequence.
Performance of sectors and indices in 2016
Source: FE Analytics
In fact, only five funds from both the IA UK All Companies and IA UK Equity Income sectors made a higher return than the MSCI United Kingdom Value index last year.
Over the following pages, we find out which funds managed to do this, look at their longer term returns and highlight what their largest holdings are at the moment.
R&M UK Equity Long Term Recovery
Performance of fund vs sector and index in 2016
Source: FE Analytics
In fifth place with a 28.09 per cent total return is Hugh Sergeant’s £148.7m R&M UK Equity Long Term Recovery fund. Being a value fund, it went through a tough 2014 and 2015 – sitting in the IA UK All Companies sector’s bottom quartile in both years. However, it was the sector’s fourth highest returner in 2016 and made the biggest gain in 2013, meaning that the fund is currently in the top decile on a five-year view after making 153.44 perc cent. Top holdings include HSBC, BP, Royal Dutch Shell, Lloyds Bank and GlaxoSmithKline. R&M UK Equity Long Term Recovery has a 1.20 per cent ongoing charges figure (OCF) and yields 1.76 per cent.
UBS UK Opportunities
Performance of fund vs sector and index in 2016
Source: FE Analytics
Steven Magill’s £26.5m UBS UK Opportunities fund made 30.01 per cent in 2106, beating the value index by 3.58 percentage points over the course of the year. Magill is a senior portfolio manager at UBS Global Asset Management with a focus on UK value equity strategies. The fund is bottom quartile in the IA UK All Companies in seven of the past 10 full calendar years, reflecting the difficult time value has hard for the bulk of the last decade. Its top holdings are BP, Royal Dutch Shell and HSBC. UBS UK Opportunities has an OCF of 1 per cent and is yielding 2.50 per cent.
Schroder Recovery
Performance of fund vs sector and index in 2016
Source: FE Analytics
In third place is Schroder Recovery, which made 31.11 per cent in 2016 and beat the MSCI United Kingdom Value by 4.68 percentage points. The £1bn fund has been run by the FE Alpha Manager duo of Kevin Murphy and Nick Kirrage for more than a decade. In 2015 it was the worst performing member of the IA UK All Companies sector with a 12.74 per cent loss. However, it was much stronger in previous years and is currently the 26th best performer in the peer group over five years with a 118.80 per cent total return. Royal Bank of Scotland, HSBC and Pearson are currently the largest stocks in the portfolio. Schroder Recovery has a 0.91 per cent OCF and yields 1.80 per cent.
UBS UK Equity Income
Performance of fund vs sector and index in 2016
Source: FE Analytics
The only entry on the list from the IA UK Equity Income sector, the £20.6m UBS UK Equity Income made a 35.03 per cent total return in 2016, beating the MSCI United Kingdom Value index by more than 8.5 percentage points. This is the second fund on the list managed by Steven Magill. Last year’s value rally means it was the best performer in the sector during 2016 but it was one of the worst funds of 2015 and 2014 after posting losses in both. This means it is currently second quartile over three and five years. Its largest holdings at present are BP, Royal Dutch Shell and HSBC. UBS UK Equity Income has a 1 per cent OCF and is yielding 3.2 per cent.
Standard Life Investments UK Equity Recovery
Performance of fund vs sector and index in 2016
Source: FE Analytics
The fund outperforming the MSCI United Kingdom Value index by the widest margin in 2016 – by 25.07 percentage points – was Standard Life Investments UK Equity Recovery. It made 51.5 per cent last year. At the time it was managed by David Cumming but Andrew Hunt took over the portfolio in March 2017. The £47.6m fund was fourth quartile in 2014 and 2015, but the strong returns of 2016 contributed to it jumping into the top decile over five years; indeed, its 149.53 per cent return makes it the IA UK All Companies sector’s seventh best performer over this period. Glencore International, Anglo American and Standard Chartered are its biggest positions. Standard Life Investments UK Equity Recovery has a 1.03 per cent total return and is yielding 0.96 per cent.