Invesco Perpetual UK Strategic Income, Liontrust Special Situations and Evenlode Income are among the top performing funds over the last five years to the 30th of May with low volatility and maximum drawdowns – the most an investor could lose if buying and selling at the worst possible times.
FE Trustnet has found that six funds in the IA UK All Companies are in the top quartile for performance as well as maximum drawdown and volatility over the last five years.
Top performing funds with volatility and maximum drawdown over 5yrs
Source: FE Analytics *figures to 30/05/2017
In May, the CBOE Volatility index (VIX) – which measures market volatility and is also known as the fear index – fell to just 9.56: its lowest level since 2006.
The index has trended lower in recent months reacting to more benign market conditions. However, some investment professionals have become concerned that low levels of volatility could suggest an imminent market correction.
Below FE Trustnet looks at how the above funds have performed in respect to the three metrics over a longer time frame and what their investment approach has been.
The best performing fund of the six listed above over the last five years is the £135.9m CFP SDL UK Buffettology fund.
The five crown-rated fund, run by FE Alpha Manager Keith Ashworth-Lord, is a concentrated portfolio of 30 stocks and uses the methodology of ’business perspective investing’ – where the manager does not make a philosophical distinction between buying shares in a company and buying the business in its entirety.
The fund, which is benchmarked against the IA UK All Companies sector, invests based on mispriced valuation opportunities regardless of the size of a company meaning it does not invest as much in the FTSE 100.
Indeed, there are no FTSE 100 companies in the top 10 holdings, with the likes of Liontrust Asset Management (3.25 per cent), Scapa Group (4.7 per cent) and Games Workshop (3.77 per cent) included in its largest holdings.
The fund was launched in March 2011 and since then has returned 155.01 per cent to investors, in the top five funds in the sector over this period.
Performance of fund vs sector and FTSE All Share since launch
Source: FE Analytics
However, while the fund was in the top quartile of the sector for its volatility and maximum drawdown over five years, this changes slightly since its launch.
It remains in the top quartile for volatility (10.59 per cent over the period) but falls to second quartile for maximum drawdown, with an investor potentially losing 15.36 per cent.
The fund has a yield of 1.24 per cent and a clean ongoing charges figure (OCF) of 1.36 per cent.
The other fund we have looked at since launch is the five crown-rated Evenlode Income, run by FE Alpha Manager Hugh Yarrow and Ben Peters.
The £1.3bn fund has been a top quartile performer in the IA UK All Companies sector over five years with low volatility and maximum drawdown.
Since its launch in October 2009, the fund is also in the top quartile over the three categories, returning 176.61 per cent with volatility of 9.53 per cent and a maximum drawdown figure of 8.63 per cent.
Evenlode Income was removed from the IA UK Equity Income sector for narrowly missing the yield target at the time but remains benchmarked to the sector.
For comparison, the IA UK Equity Income sector average has returned 110.53 per cent over the same period, with volatility of 10.14 per cent and a maximum drawdown of -11.94 per cent.
The managers have an emphasis on stocks that generate high returns on capital throughout the cycle and that generate free cash flow.
As a result, there are no miners or oil stocks in the portfolio which is overweight consumer goods companies, technology firms and healthcare stocks.
Evenlode Income yields 3.2 per cent and has an OCF of 0.95 per cent.
For the JPM UK Equity Growth fund, we have considered the period when manager Ben Stapley took over the fund in 2010; he was joined by co-manager Kyle Williams last year.
Over this period, despite a strong five year track record, the four crown-rated fund falls out of the top quartile for all of the three above categories.
Indeed, it has returned 113.03 since the manager started – placing it in the second quartile of the IA UK All Companies sector – and has experienced volatility of 11.8 per cent (also second quartile).
Its maximum drawdown of -16.96 per cent is in the third quartile over the period and occurred in 2011 when the European sovereign debt crisis shook markets.
Performance of fund vs sector and FTSE All Share since manager start date
Source: FE Analytics
The £261m fund aims to provide long-term growth through a portfolio of predominantly large-cap stocks such as Royal Dutch Shell, British American Tobacco, and GlaxoSmithKline – its three largest holdings.
The fund has a yield of 1.84 per cent and an OCF of 0.93 per cent.
The other three funds on the list Invesco Perpetual UK Strategic Income, R&M UK Dynamic Equity and Liontrust Special Situations all have much longer track records, so we have decided to look at their track record over nine years.
This period encompasses a full market cycle and also includes the financial crisis of 2008, the most significant market event in recent history.
Starting with the £836m, four crown-rated Invesco Perpetual UK Strategic Income, managed by FE Alpha Manager Mark Barnett since 2006.
The fund remains in the top quartile for performance (127.48 per cent), volatility (10.93 per cent) and maximum drawdown (24.37 per cent) over the last nine years.
Barnett aims to provide an above average income stream with capital growth, and is currently highly weighted to financials, healthcare and industrials.
The fund manager, who took over a number of funds from FE Alpha Manager Neil Woodford when he left Invesco in 2014, is seeking to invest with sensible diversification into areas where he sees the prospect of making money in absolute terms.
The fund has a yield of 2.93 per cent and an OCF of 0.92 per cent.
Similarly, Liontrust Special Situations, run by FE Alpha Managers Anthony Cross and Julian Fosh is also in the top quartile across each metric over the past nine years.
The five crown-rated fund has returned 249.98 per cent over the period, experiencing volatility of 13.09 per cent and a maximum drawdown of 29.24 per cent.
The managers use the ‘Economic Advantage’ process which is derived from holding intangible assets that are hard to replicate; the most important of these is intellectual property but this also includes strong distribution channels and significant recurring business.
The £2.6bn fund, which is currently overweight industrials and consumer services while underweight financials and oil & gas, has a yield of 1.83 per cent and an OCF of 0.87 per cent.
Performance of fund vs sector and FTSE All Share over 9yrs
Source: FE Analytics
The final fund is R&M UK Dynamic Equity which, despite a strong five-year run, has less impressive figures over nine years.
The £193m fund is run by FE Alpha Managers Philip Rodrigs and Daniel Hanbury who joined in 2016, taking over from Daniel Hanbury who was in charge for the rest of the period.
The four crown-rated fund has returned 91.5 per cent over the last nine years – placing it in the second quartile of the IA UK All Companies sector – and has experienced volatility of 11.8 per cent (also second quartile).
However, its maximum drawdown of -39.92 per cent is in the bottom quartile over the period and occurred in 2008 as it failed to protect on the downside to the same degree that the other funds above did.
The fund, which currently has a higher weighting to mid- and small-caps than its benchmark, has a yield of 1.95 per cent and an OCF of 0.85 per cent.