Threadneedle UK Growth & Income, MFM Slater Recovery and SVM UK Growth are among the funds with the most to gain from a new dedicated UK mid-cap sector, according to data from FE Analytics.
Earlier this month, FE Trustnet revealed that the IA are consulting with asset managers on the creation of a dedicated UK mid-cap sector with as many as 14 funds potentially leaving the IA UK All Companies sector.
Over five years – a popular period for comparison among investors – all 10 mid-cap funds with a long enough track record sit in the top quartile of the IA UK All Companies with the sector having generally outperformed.
Indeed, the FTSE 250 has returned 119.59 per cent compared to the FTSE 100’s 69.48 per cent return over the last five years.
Performance of indices over 5yrs
Source: FE Analytics
As a result, there a number of all-cap funds that would currently sit in the top quartile of the IA UK All Companies sector over five years if the dedicated mid-cap funds were removed.
Below FE Trustnet takes a look at some of the funds that would currently be moved into the top quartile and those just outside.
The all-cap fund sat at the top of the second quartile over five years is Liontrust Sustainable Future UK Growth run by Peter Michaelis and Neil Brown.
Formerly Alliance Trust Sustainable Future UK Growth, the fund was acquired by Liontrust earlier this year as part of its takeover of Alliance Trust Investments, which saw 11 sustainable investment funds headed by Michaelis moving over.
The £281m fund is heavily weighted to financials (27 per cent), industrials and consumer discretionary stocks (15 per cent each) though its top holding is healthcare firm GlaxoSmithKline.
In its latest factsheet, the managers said: “Performance over the first quarter was ahead of the benchmark, building on the strong long-term record of outperformance.
“We remain focused on companies well placed to outperform given their exposure to the long-term trends of improving quality of life, increasing resource efficiency and helping to build a more resilient economy.”
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fund has performed strongly over the past five years returning 105.81 per cent and beating both the FTSE All Share benchmark and its sector.
However, the fund is 60th out of 234 eligible IA UK All Companies funds, just outside the top quartile. When mid-caps are stripped out however, it leaps to 50th out of 224 – comfortably within the top quartile.
The fund has a yield of 1.54 per cent and a clean ongoing charge figure (OCF) of 0.85 per cent.
Also on the list is FE Alpha Manager Mark Slater’s MFM Slater Recovery, which has returned 1.01 percentage points less than Liontrust Sustainable Future UK Growth.
The five crown-rated, £36.1m fund, has delivered consecutive top-quartile rolling three-year returns since 2010 but is in the second quartile over five years. The fund has a yield of 1.09 per cent and an OCF of 0.82 per cent.
Fellow FE Alpha Manager Margaret Lawson also cracks the top quartile with SVM UK Growth, which she co-manages with Colin McLean.
The £154m fund is significantly underweight oil and financials and overweight industrials, basic materials and consumer services companies.
The managers think that last year, which saw many UK funds underperform the market thanks to the resurgence of the value trade and uncertainty around Brexit hitting the mid-caps, was “exceptional”.
“In 2017, the value of fundamental research is being reasserted. Company analysis matters; many sectors face disruption by new business models and online competition,” they said in the latest factsheet.
“Active managers can tilt their portfolios towards emerging businesses and the blue-chips that genuinely have a competitive edge and growth strategy.
“A passive investment approach that blindly captures yesterday’s economy may deliver more risk than active management.” The fund has a yield of 1 per cent and an OCF of 1.02 per cent.
Source: FE Analytics
Barclays UK Opportunities overseen by Hilary Aldridge, is the second best performer outside the first quartile behind the Liontrust Sustainable Future UK Growth, having returned 104.95 per cent over the past five years.
The £88m fund is benchmark unaware, meaning it generally has little exposure to the top holdings in the FTSE 100, focusing instead on companies that are “undiscovered talent”. The fund has a yield of 2 per cent and an OCF of 1.20 per cent.
The four crown-rated Threadneedle UK Growth & Income, run by Richard Colwell, would also make it into the top quartile.
The £430m fund, which has a yield of 3.3 per cent and an OCF of 0.88 per cent, invests at least two-thirds of its assets in shares of large, well-known UK companies with good growth records.
Again it is underweight financials but is quite overweight consumer services (26 per cent of the fund) and industrials (25.1 per cent) with Imperial Brands, Unilever and Marks and Spencer Group among its top 10 holdings.
The other funds that would move into the top quartile of the IA UK All Companies sector are TB Saracen UK Alpha and Smith & Williamson UK Equity Growth.
However, there are a number of funds on the cusp of getting into the top quartile including Newton UK Opportunities, Threadneedle UK Overseas Earnings and Henderson UK Equity Income & Growth.
At the other end of the spectrum, the Royal London UK Growth fund run by Richard Marwood, Royal London UK Opportunities run by Derek Mitchell and passive vehicle Aviva Investors UK Index Tracking would escape the dreaded bottom quartile, moving into the third quartile.
While these are the funds that could benefit from a proposed IA Mid Cap sector, there are also funds that will suffer.
Aberdeen UK Mid Cap Equity, for example, is in the top quartile of IA All Companies funds but would be bottom of a proposed mid-cap sector.
The £50m fund, which has returned 107.52 per cent over the past five years, 12.07 percentage points below the FTSE 250.
Along with the HSBC FTSE 250 Index tracker fund, Threadneedle UK Mid 250 would also sit in the bottom quartile of a proposed mid-cap sector, despite being the 37th best performer in the IA UK All Companies sector out of 234 eligible funds.
The £116m fund, run by James Thorne and Matthew Evans is underweight financials and industrials compared to its FTSE 250 benchmark while overweight technology and healthcare.