Almost 20 funds in the IA UK Smaller Companies sector have underperformed their peers on a wide spread of closely-watched metrics, according to FE Trustnet research, with one in the bottom decile on all metrics we examined.
In an article yesterday, we revealed the UK smaller companies fund that are sitting at the top of the peer group when it comes to 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 relative to the Numis Smaller Companies Excluding Investment Companies index.
The fund that came out on top in that study was Liontrust UK Smaller Companies, which had an average decile ranking of 1.9 and was in the top decile for alpha generation, annualised volatility, Sharpe ratio and downside capture after making 155.82 per cent over the five years under review.
Performance of fund vs sector and index over 5yrs to the end of 2016
Source: FE Analytics
Other funds that featured highly in the rankings included CF Livingbridge UK Micro Cap, Old Mutual UK Smaller Companies Focus, Fidelity UK Smaller Companies and Schroder UK Smaller Companies.
However, when we turned things on their head and looked for the IA UK Smaller Companies funds with the highest average decile rankings, we found that 19 scored higher than six.
Coming bottom in the table was SF Webb Capital Smaller Companies Growth, which was in the sector’s bottom decile for all 10 metrics we examined. Over the five years to the end of 2016, the fund has lost 53.14 per cent – making it the only fund in the sector to post a loss over this period.
Peter Webb has run the fund since May 2012 after being brought in to replace Tom Winnifrith after a period of underperformance but its run of lacklustre returns has continued. The fund is underperforming from a total return point of view, while being more volatile and hit with larger drawdowns than the rest of the sector.
Webb remains confident on the outlook for smaller companies, saying in his latest update: “Your manager believes that the smaller company sector is now enjoying bull market conditions and that fund flows into the sector will increase substantially in the months ahead. Investor confidence in the sustainability of UK growth and a potential switch of long term pension fund assets from bonds to equities will most likely drive share prices higher unless there is a material increase in available equity.”
However, the table below – which reveals all 19 funds with an average decile ranking higher than six, shows how the fund’s performance has differed from the rest of the sector.
Source: FE Analytics
Of the 10 products with the highest average decile ranking, the one running the most money is the £430.8m M&G Smaller Companies fund. Headed up by Garfield Kiff since June 2015 with Matthew Cable as deputy, the fund has an average decile ranking of 8.1.
It is in bottom decile for its 2014 return and in the ninth decile for five-year returns (after making 97.05 per cent up to the end of 2016), alpha generation, Sharpe ratio and downside capture relative to the Numis Smaller Companies Excluding Investment Companies index.
Performance of fund vs sector and index over 5yrs to the end of 2016
Source: FE Analytics
That said, the fund has had a strong start to 2017. Its 18.89 per cent total return over the year to date makes it the eighth best performer in the IA UK Smaller Companies sector, which pulls the fund into the sector’s third quartile over the five years to the latest price.
L&G UK Smaller Companies Trust, Investec UK Smaller Companies and Kames UK Smaller Companies are also funds with assets under management of more than £300m and are also in the IA UK Smaller Companies sector’s lower deciles for the metrics examined.