Liontrust UK Smaller Companies, Fidelity UK Smaller Companies and Schroder UK Smaller Companies are sitting at the very top of their sector according to a diverse spread of risk and return metrics, the latest research by FE Trustnet shows.
As part of an ongoing series, we are looking at the main Investment Association sectors and examining their members’ average decile ranking for cumulative five-year returns to the end of 2016, those for the three most recent individual calendar years, annualised volatility, maximum drawdown, alpha generation, Sharpe ratio, downside capture and upside capture.
Performance of sector vs index over 5yrs to the end of 2016
Source: FE Analytics
When we ran the study last year, the winner was AXA Framlington UK Smaller Companies but this fund has fallen into sixth place in the updated research and a different fund is at the head of the table.
Over the following pages, we look at the five funds with the sector’s best average decile rankings (using the Numis Smaller Companies Excluding Investment Companies as the underlying index) as well as revealing the top 20 on the final page.
Schroder UK Smaller Companies
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
In fifth place with an average decile ranking of 2.9 and a five-year total return of 147.03 per cent is the £716.8m Schroder UK Smaller Companies fund, which is headed up by FE Alpha Manager Andrew Brough. Longstanding co-manager Rosemary Banyard left the firm in March 2016. The fund is not in the first decile on any of the 10 metrics but is in the second for five-year returns, alpha generation, annualised volatility, Sharpe ratio and downside capture. The portfolio is built around a core of stocks that have strong business franchises and are in areas of secular growth, while there is also exposure to firms that could benefit from a cyclical uptick. Top holdings at the moment include Photo-Me International, Liontrust Asset Management and Dart Group. Schroder UK Smaller Companies has an ongoing charges figure (OCF) of 0.91 per cent.
Fidelity UK Smaller Companies
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
FE Alpha Manager Alex Wright has run the £423m Fidelity UK Smaller Companies fund since its launch in February 2008 and was joined by co-manager Jonathan Winton in March 2013. The fund has an average decile ranking of 2.9 and has made 175.12 per over the five years to the end of 2016, putting it in fourth place in this study. It is top decile for five-year returns, maximum drawdown, Sharpe ratio and upside capture. Wright has a contrarian style and looks for unloved companies that he thinks are entering a period of positive change; top holdings include Ultra Electronics, Esure Group and CLS Holdings. Square Mile said: “This approach has proved very successful since the fund's launch and though there will be periods when this style of investing is out of favour it should reap rewards over the long term.” Fidelity UK Smaller Companies has a 0.95 per cent OCF.
Old Mutual UK Smaller Companies Focus
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Another fund with an average decile ranking of 2.9, Old Mutual UK Smaller Companies Focus has made 180.2 per cent over the five years under review and is top decile for five-year returns, alpha generation and upside capture. Manager Nick Williamson only took over the fund at the start of 2016; prior to this, he was deputy manager with Daniel Nickols as lead. It has the aim of outperforming in all economic cycles, so the process analyses a company’s business model, strategy and finances to determine what will do well in the current environment. The largest holdings in the 60-stock portfolio include Fever-Tree Drinks, Boohoo.com and Ascential. The FE Invest team said: “Williamson has reduced the number of stocks since he took over the fund, meaning that the individual performance of those stocks is more important to returns. This offers greater potential for outperformance, although also the possibility for problems if the stocks have a poor period.” Old Mutual UK Smaller Companies Focus has a 0.88 per cent OCF.
CF Livingbridge UK Micro Cap
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
In second place with a 2.7 average decile ranking is CF Livingbridge UK Micro Cap, which is run by FE Alpha Manager Ken Wotton and until recently was called Wood Street Microcap Investment. The £68.5m fund is in the top decile for five-year returns with a 156.85 per cent as well as for alpha generation, Sharpe ratio and downside capture. As its name suggest, the portfolio is built from stocks at the bottom of the market-cap spectrum, with more than two-thirds of assets being investing in AIM businesses. Top holdings include environmental kitchen solutions firm Filta Group, PR & digital marketing agency Next Fifteen and agency staff provider Staffline. CF Livingbridge UK Micro Cap has a 1.02 per cent OCF.
Liontrust UK Smaller Companies
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Holding the top spot in our research with a 1.9 average decile ranking is Liontrust UK Smaller Companies, which is run by the FE Alpha Manager duo of Anthony Cross and Julian Fosh with Victoria Stevens and Matthew Tonge as co-managers. The £692.8m fund made 155.82 per cent over the five years to the end of 2016, which puts it in the IA UK Smaller Companies sector’s second decile; it has top decile numbers of alpha generation, annualised volatility, Sharpe ratio and downside capture. The process behind the fund – Liontrust Economic Advantage – seeks out companies with intangible assets such as desirable intellectual property, strong distribution channels and significant recurring business. Its top holdings include Craneware, PayPoint and dotDigital. Liontrust UK Smaller Companies has an OCF of 1.37 per cent.
Source: FE Analytics