Skip to the content

The UK funds suffering a rare bottom-quartile placing this year

19 June 2017

We look at the funds in the IA UK All Companies sector that are in the bottom-quartile year-to-date but have achieved solid and consistent returns over the longer term.

By Lauren Mason,

Senior reporter, FE Trustnet

GVQ UK Focus, Artemis Capital and Lazard UK Omega are among some of the UK growth funds that are in the bottom quartile year-to-date but have demonstrated consistency and strong returns over the previous five years, according to data from FE Analytics.

Investors need no reminding of the temperamental market conditions seen over the last 18 months, which have ranged from defensive growth stocks outperforming during the first half of 2016, a violent rotation into value near the end of the year and a snapback to quality year-to-date.

As such, many funds with strong long-term track records have struggled to keep pace with the index recently as investment styles have swung sharply in and out of fashion over this time frame. For those looking to add new holdings to their portfolios, blips in performance could present themselves as opportunities to buy into funds which, other than over recent months, have achieved strong consistent returns.

With this in mind, we decided to look at the funds in the IA UK All Companies sector which, while in the fourth quartile year-to-date, have avoided the bottom quartile over each of the five previous years. From this, we filtered for funds that had outperformed the FTSE All Share’s 61.84 per cent return between 2012 and 2016.

Out of 266 funds, just eight of them with long-enough track records achieved higher returns than their average peer and the index while avoiding the bottom quartile over all five years.


Source: FE Analytics

As shown above, the fund that has achieved the highest returns from the start of 2012 to the end of 2016 and had no fourth-quartile years but is bottom-quartile year-to-date is the four crown-rated GVQ UK Focus fund, which is £388m in size and is headed up by FE Alpha Manager Jamie Seaton.

The fund aims to provide capital appreciation through adopting a private equity approach to investing in public markets. Essentially, it does this through focusing on four key drivers: earnings growth, re-rating, de-gearing and corporate activity. The team believes public equity managers tend to only focus on the first two drivers and private equity managers only focus on the latter two, so it seeks to combine these techniques to maximise growth potential.

This process results in a highly concentrated portfolio of 25 holdings, with the fund’s largest individual weightings including Shire, Jupiter, Aberdeen and Sky.

Over five years to the end of 2016, the fund has achieved a total return of 120.09 per cent compared to its sector average and FTSE All Share benchmark’s respective returns of 69.84 and 61.84 per cent.

Performance of fund vs sector and benchmark over 5yrs to 2017

 

Source: FE Analytics

Year-to-date, however, it has underperformed its sector average by 4.33 percentage points with a total return of 4.18 per cent. This means it has also underperformed the FTSE All Share by 3.23 percentage points over this time frame.


Given the high concentration of the fund’s portfolio (its largest individual holding has a 9.2 per cent weighting) investors should perhaps expect some short-term volatility. Over five years to the end of 2016, for instance, it is in the third quartile for its maximum drawdown (which measures the most money lost if bought and sold at the worst possible times) of 14.13 per cent and is in the bottom quartile for its annualised volatility.

GVQ UK Focus has a clean ongoing charges figure (OCF) of 0.95 per cent.

Next on the list is Artemis Capital, which is managed by Philip Wolstencroft. In total return terms, it has outperformed its average peer and benchmark by a respective 30.38 and 38.38 percentage points with gains of 100.22 per cent. Year-to-date, it has returned 7.28 per cent which, while just a few basis points behind the FTSE All Share, places it in the bottom quartile.

Wolstencroft focuses on well-managed companies with potential for earnings growth when selecting stocks. He is able to invest across the cap spectrum and holds 54.9 per cent in large-caps, 41.1 per cent in mid-caps and 3.8 per cent in small-caps at the moment.

The fund currently has a notable domestic-facing cyclical tilt, with Lloyds Bank, Bellway, Taylor Wimpey and Barclays accounting for some of its top 10 holdings. This is likely to explain its underperformance year-to-date, given that quality stocks have outperformed in 2017 so far.

Artemis Capital has a clean OCF of 0.92 per cent.

Next up is Lazard UK Omega. The four crown-rated fund, which aims to provide capital growth through a concentrated portfolio of around 30 stocks, has been headed up by Alan Custis since 2005 and co-managed by Lloyd Whitworth since 2010.

In total return terms, it has outperformed its average peer and FTSE All Share benchmark by 26.09 and 34.09 percentage points respectively over five years to the end of 2016 with a total return of 95.93 per cent. Year-to-date, however, it has returned 6.39 per cent compared to its average peer’s return of 9.66 per cent and the FTSE All Share’s return of 7.84 per cent.

Performance of fund vs sector and benchmark over 5yrs to 2017

 

Source: FE Analytics

In an article published at the end of March, Custis told FE Trustnet he favoured cyclical and recovery stocks over quality growth stocks, as he believes the six-year bull market still has further to run. Again, this could explain why the fund has slightly underperformed its benchmark so far this year.


“I think the backdrop for equities broadly is pretty positive and I think we have a number of years to run before we roll over the other side into recessionary conditions,” he said.

Examples of the fund’s largest current holdings include Royal Dutch Shell, BP and Prudential. Lazard UK Omega has a clean OCF of 0.8 per cent.

The fourth UK fund is Artemis Institutional UK Special Situations. However, as its name suggests, it is only available to institutional investors.

That said, Artemis UK Special Situations – which is available on most platforms – has made it onto our list of eight funds.

Also headed up by FE Alpha Manager Derek Stuart and Andy Gray, the £1bn fund aims to provide long-term growth through struggling and attractively-valued companies which have proven their ability to turn their performance around. Again, this style of investing has simply fallen out of favour year-to-date, with the fund underperforming its sector average by 3.57 percentage points so far in 2017 with a total return of 5.57 per cent.

In fifth place is CFIC CRUX UK. The four crown-rated fund is managed by Patrick Barton and Jamie Ward and adopts a very long-term, highly-concentrated and bottom-up approach to stock selection. Unusually for a UK equity fund, the managers are currently bullish on US banks (they are able to allocate up to 15 per cent of the fund to overseas stocks).

Over five years to the end of last year, it has achieved a total return of 79.9 per cent, outperforming its average peer and benchmark by a respective 9.86 and 17.86 percentage points.

It has a clean OCF of 1.12 per cent.

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.