Standard Life Investments UK Equity Recovery, Invesco Perpetual UK Focus and R&M UK Equity Long Term are among some of the UK equity funds to have achieved the strongest upside capture ratios relative to the FTSE All Share over each of the last five years to the end of May, according to research from FE Trustnet.
This comes following improving investor sentiment towards the UK, despite the looming general election and ongoing Brexit negotiations.
In an article published last week, star manager Woodford explained why he overhauled his portfolio to boost his exposure to the domestic UK market, having sold long-term global-facing holding GlaxoSmithKline to fund his repositioning.
He isn’t alone, either. An FE Trustnet article published yesterday explored FE Alpha Manager Leigh Himsworth’s decision to expose his Fidelity UK Opportunities fund to domestic cyclicals including financials, supermarkets and construction businesses. The website also featured an article yesterday based on Natixis’s latest Portfolio Barometer report, which found that UK equities were the only regional investments within the asset class to receive inflows across conservative, moderate and aggressive model portfolios (within their data pool) over Q1 this year.
As such, FE Trustnet has looked at the funds within the IA UK All Companies sector which have outperformed the FTSE All Share during periods of market strength.
To do so, we focused on the funds with at least five-year track records and looked at the upside capture ratios on an annual basis over the last five years to the end of April.
Bearing in mind that an upside capture ratio of 100 indicates that a fund has lost less than its benchmark when it has fallen in value, 71 out of 239 (or 29.7 per cent) of funds in the IA UK All Companies sector have achieved an upside capture of at least 500 over each of the last five individual years.
Out of these, 20 of them have achieved an upside capture ratio in excess of 100 during at least four of the past five years to the end of April.
Source: FE Analytics
The fund taking the top spot for its combined upside capture ratio of 807.23 over each of the past five years is Standard Life Investments UK Equity Recovery, which is £47m in size and is headed up by Andrew Hunt. While it is small, it is still available on most platforms.
The fund managed to achieve an upside capture ratio of more than 100 over each of the past five years to the end of last month apart from in May 2016 to May 2017, when it scored a ratio of 92.37.
As shown in the below graph, the fund achieved a majority of its high score between May 2015 and May 2016, when it boasted a substantial upside capture ratio of 276.89. Over five years to the end of last month, it has comfortably doubled the performance of the FTSE All Share with a total return of 128.21 per cent.
Performance of fund vs sector and index over 5yrs to May 2017
Source: FE Analytics
Over the same time frame, it has a cumulative bull beta ratio, which measures a fund’s sensitivity to positive changes in an index’s performance, of 1.11. This means that, for every 1 per cent rise in the FTSE All Share, the fund his risen by 1.11 per cent.
In terms of risk metrics, it has a five-year maximum drawdown (which measures the most money lost if bought and sold at the worst possible times) of 23.45 per cent compared to the FTSE All Share’s return of 11.12 per cent, suggesting the fund may not be best-suited to the more cautious investor. It also has a bottom-quartile annualised volatility and downside risk ratio (which measures a fund’s susceptibility to lose money during falling markets) relative to its average peer over the same timeframe.
Next up for its combined upside capture ratio of 630.12 is Invesco Perpetual UK Focus, which is managed by FE Alpha Manager Martin Walker and is £200m in size.
As with SLI UK Equity Recovery, the only 12-month period to the end of April that it didn’t achieve an upside capture ratio of more than 100 is between May 2016 and May 2017, when its ratio amounted to 87.06 (interestingly, not a single fund that achieved an upside capture ratio of more than 100 in each of the four previous 12-month periods managed it over the final time frame).
Over the last five years to the end of April, the fund returned 106.58 per cent compared to its average peer and the FTSE All Share index’s respective returns of 66.17 and 56.71 per cent. Indeed, this upside capture comes at a price as it is in the bottom quartile for its maximum drawdown of 18.27 per cent, its annualised volatility and its downside risk ratio compared to its average peer.
Another interesting point to note is that, while it has achieved stellar upside capture ratios, it has a bull beta ratio of 0.8 over the same time frame compared to its sector average’s bull beta of 0.85.
The next fund on the list is Old Mutual Equity 1, although it should be noted the fund is institutional-only and is therefore unavailable on most platforms. Headed up by FE Alpha Manager Richard Watts, the five crown-rated fund has a combined five-year upside capture ratio of 615.25.
Moving further down the list in fourth place is R&M UK Equity Long Term Recovery, which is headed up by Hugh Sergeant and has an AUM of £145m.
Unlike the aforementioned funds, it has managed to achieve an upside capture ratio above 100 over the last 12 months to the end of May. However, it scored a ratio of 71.33 between May 2014 and May 2015.
The fund has a five-year bull beta ratio of 0.95 to the end of May relative to the index, which is 10 percentage points more than its average peer over this time frame.
Unsurprisingly, R&M UK Equity Long Term Recovery also requires steely nerves and a long-term time horizon from investors as, over the same period, it is in the bottom quartile for its maximum drawdown of 18.63 per cent and for its annualised volatility. It is, however, in the second quartile for its downside risk ratio.
Those able to look through the short-term volatility would have been rewarded, though. Over five years to the end of April, it outperformed its sector average and its benchmark by a respective 59.35 and 68.81 percentage points with a total return of 125.52 per cent.
Performance of fund vs sector and benchmark over 5yr to May 2017
Source: FE Analytics
The fifth fund on the list is Old Mutual UK Mid Cap, which has five FE crowns and is headed up by Richard Watts.
The £2.7bn fund has a combined five-year upside capture ratio of 605.47 and, as with most of the funds mentioned in the article, only fell short of achieving an upside capture of more than 100 during the last 12 months to the end of April.
While it should be noted that the fund is benchmarked against the FTSE 250 (ex ITs) index, for the purpose of this study we have looked at it in comparison to the FTSE All Share index. With this in mind, it has a bull beta ratio of 0.76 and, relative to its actual benchmark, it has a bull beta ratio of 0.95.
Over five years to the end of April 2017, it has outperformed its average peer and benchmark by 98.76 and 66.56 percentage points with a total return of 164.93 per cent. The FTSE All Share returned a comparative 56.71 per cent.
Other funds that deserve an honourable mention for their upside capture over the last five years include JOHCM UK Dynamic, Invesco Perpetual UK Growth and Majedie UK Focus.