Old Mutual UK Smaller Companies Focus, UBS Equity Income and MI Chelverton UK Equity are among some of the UK funds to have achieved the best returns since the results of the EU referendum were announced, according to data from FE Analytics.
This comes exactly one year after the shock ‘leave’ result was announced. Investors need no reminding that, while the result was perhaps a surprise, the market reaction to the news was arguably more unexpected as a plunge in sterling bolstered the global-facing FTSE 100 index.
As greater clarification surrounding the impending Brexit negotiations seemed to emerge – alongside expectations for fiscal loosening - cyclical and domestic stocks further down the cap spectrum left the blue-chips somewhat trailing in the dust. This market behaviour was also seen across the globe, following November’s election of Donald Trump and his proposed policies on fiscal stimulus.
The second half of last year and the first half of 2017 couldn’t have been more different, however, as fresh waves of geopolitical uncertainty and waning hopes that Trump will be able to pass his policies through Congress caused a sharp snapback to large-cap growth stocks.
Performance of index over 1yr
Source: FE Analytics
In the challenging and choppy market conditions seen in the year following the referendum, how have the investment vehicles within the Investment Association universe fared?
Overall, the IA UK Equity Income and IA UK All Companies sectors have been lacklustre relative other market areas, having found themselves in 17th and 20th place out of the 34 Investment Association sectors for their average respective returns of 21.7 and 19.36 per cent over the last 12 months.
The IA UK Smaller Companies sector has fared slightly better with an average return of 27.87 per cent, which means it is in 15th place on the list. This could be due to the fact that some innovative companies further down the cap spectrum are less affected by broader market swings or macroeconomic events.
In contrast, the sector that has achieved the strongest average return over the last year is IA China/Greater China, with stellar average gains of 51.86 per cent over the last 12 months. This is likely to be the result of the economy’s continuing rotation out of dependence on manufacturing and into more service-based industries, which has been helped by the rise of the middle class and improving corporate governance in the country.
The best-performers in the sector over the past year are Baillie Gifford Greater China - which was also the best-performing fund overall - with gains of 68.94 per cent, Julius Baer Multistock China Evolution with a 64.67 per cent return and Matthews Asia China which is up 62.34 per cent over the last year.
Other sectors which have performed particularly well over the last 12 months include IA Technology & Communications, IA Asia Pacific Excluding Japan and IA Global Emerging Markets (which of course has a significant China weighting).
While the top two-performing funds are in the IA China/Greater China sector, the $1.5bn Polar Capital Global Technology fund came in third place on the list of best-performers within the Investment Association universe for its 63.89 per cent return.
At the opposite end of the spectrum – other than money marketing and targeted absolute return funds – investors will be unsurprised that IA UK Gilts, IA Sterling Strategic Bond and the IA Sterling Corporate Bond sectors are at the bottom of the pack having all failed to return more than 9 per cent on average.
Performance of sectors over 1yr
Source: FE Analytics
The worst-performing fund over the last 12 months though has been SF Webb Capital Smaller Companies Growth, which has lost 13.31 per cent since the EU referendum. This is likely to be the result of its small size and therefore a lack of liquidity, as it has an AUM of just £925,000.
Other funds that are near the bottom of the list for their double-digit losses over the last 12 months include MFM Junior Gold, FP Argonaut Absolute Return and CF Odey Absolute Return.
That said, funds within the IA universe have performed well overall since the EU referendum, with each sector managing to achieve a positive average return over the last 12 months.
In fact, the median return across all sectors since the EU referendum is 23.72 per cent, with 28 out of 34 sectors all returning more than 10 per cent over the last year.
While UK fund returns – which are of course most likely to be affected by Brexit – have been uninspiring relative to vehicles across other market areas, there are of course some that have fared better than others over the last year.
Out of the three UK equity sectors, the best performer since the EU referendum has been the five crown-rated Old Mutual UK Smaller Companies Focus fund. Over the last 12 months, Nick Williamson’s £276m fund has outperformed its average peer and Numis Smaller Companies ex Investment Companies benchmark by 32.53 and 36.4 percentage points respectively with a total return of 60.4 per cent.
Performance of fund vs sector and benchmark over 1yr
Source: FE Analytics
Within the IA UK Equity Income sector, the four crown-rated UBS UK Equity Income fund has taken the top spot for its 34.24 per cent return, while MI Chelverton UK Equity Growth is in first place within the IA UK All Companies sector for its 12-month gains of 39.25 per cent.
UK equity funds to have struggled the most since the EU referendum results (aside from the previously mentioned Webb Capital vehicle) include Standard Life Investments UK Equity Unconstrained, Kames Ethical Equity and CF CanLife UK Equity. That said, 390 out of 391 UK equity funds have achieved a return of at least 9 per cent over the last 12 months.