Embracing volatility is something many investors struggle with, but six UK funds run by FE Alpha Managers have proven adept at managing higher risk to gain larger returns, according to the latest FE Trustnet study. 
Macroeconomic and geopolitical factors make the current climate one full of uncertainty, with many investors looking for lower risk assets to see them through this potentially difficult period.
However, the level of risk a fund takes is not the same as the quality of risk it takes i.e. whether added risk has resulted in exceptional returns.
As such, below, FE Trustnet looks at the UK funds run by FE Alpha Managers with an FE Risk Score of more than 100 that have outperformed the market and sector with a top quartile high Sharpe ratio score – a measure of risk-adjusted returns.
The FE Risk Score is a measure of volatility relative to the FTSE 100 index over the last three years – with a score of more than 100 showing a fund has taken on a higher level of risk than the market.
The Sharpe ratio shows how much excess return an investor is receiving for the extra volatility taken by holding a riskier asset.
The first manager on the list is Martin Walker, manager of the Invesco Perpetual UK Focus, which has the highest FE Risk Score of any of the funds mentioned at 108.
The fund, which is benchmarked against the IA UK All Companies sector, is a concentrated portfolio with no direct correlation to a specific index.
The £207m fund has a Sharpe Ratio of 0.26, higher than the FTSE All Share’s 0.14 and double the sector average of 0.13 over the last decade.
Walker took over management of the fund from Stephen Anness in December 2013, who had run the fund since 2008 when he took over from Ed Burke.
Performance of fund vs sector and FTSE All Share over 10yrs
Source: FE Analytics
Over the past 10 years, the fund has returned 99.5 per cent, 26.98 and 28.73 percentage points ahead of the FTSE All Share and IA UK All Companies index respectively.
It has experienced 14.82 per cent volatility over the period, 0.68 and 0.14 percentage points more than the FTSE All Share and sector respectively.
The portfolio is currently made up of 33 holdings, with BP and Shell the top two holdings accounting for 13.69 per cent of the fund though its largest sector weighting is to financials (30.72 per cent).
In the latest fund factsheet, Walker noted: “Despite the challenging regulatory outlook for UK banks, the fund manager maintains the view that these businesses are better capitalised than at any point since the financial crisis.”
It has a yield of 2.4 per cent and a clean ongoing charges figure (OCF) of 0.92 per cent.
Next in the study is Richard Watt’s five crown-rated Old Mutual UK Mid Cap, which has an FE Risk Score of 102.
The fund has been the second best performer in the IA UK All Companies sector over the last 10 years returning 231.01 per cent thanks – in part – to the steady rise of mid-caps over the period.
Performance of fund vs sector, benchmark and FTSE All Share over 10yrs
Source: FE Analytics
As the above shows, the FTSE 250 has outperformed the FTSE All Share – which is around 80 per cent weighted to the FTSE 100 – by 59.88 percentage points over the last decade.
The £2.85bn fund has been managed by Watts since December 2008 when he took over from Ashton Bradbury.
The fund has a Sharpe ratio of 0.49 – the fifth highest in the sector and 0.21 ahead of the FTSE 250 ex IT index’s 0.28.
It has experienced 17.94 per cent volatility over the period placing it in the bottom quartile and is 0.43 percentage points more than the mid-cap benchmark.
The portfolio is currently made up of 43 stocks and is most weighted to industrials (26.1 per cent), financials (25.4 per cent) and consumer services (24.4 per cent).
The fund has a yield of 0.82 per cent and an OCF of 0.85 per cent.
The £894m Majedie UK Focus has been run by Chris Field and James de Uphaugh throughout the period, joined by Matthew Smith in 2010 and FE Alpha Manager Chris Reid in 2012.
The fund, which also has an FE Risk Score of 102, has been a top quartile performer in the IA UK All Companies sector over the last decade returning 152.66 per cent.
It has a Sharpe ratio of 0.43, more than three times higher than the FTSE All Share and the IA All Companies sector over the period.
The four crown-rated fund has experienced volatility of 14.4 per cent slightly above the benchmark but 0.28 percentage points below the sector average.
The concentrated portfolio of 50 stocks is currently 15.1 per cent invested in oil & gas stocks with 11.8 per cent in food & drug retailers.
It has a yield of 1.5 per cent and an OCF of 1.52 per cent.
Schroder Recovery, Schroder Specialist Value UK Equity and Schroder Income
The three funds listed above are all managed by FE Alpha Managers Nick Kirrage and Kevin Murphy.
Both the Schroder Recovery and Schroder Specialist Value UK Equity funds sit in the IA UK All Companies sector and have an FE Risk Score of 102.
The £1bn Schroder Recovery fund has experienced one of the highest volatility in the sector (18.21 per cent), but has a Sharpe ratio of 0.29 – more than double both the sector and the FTSE All Share.
The £92.6m Schroder Specialist Value UK Equity fund has experienced less volatility (15.74 per cent) but has a slightly lower Sharpe ratio of 0.26.
The funds have returned 130.62 and 108.03 per cent respectively, both top quartile figures in the sector and markedly ahead of the FTSE All Share.
Schroder Recovery has a yield of 1.82 per cent and an OCF of 0.91 per cent; Schroder Specialist Value UK Equity has a yield of 2.86 per cent and an OCF of 0.78 per cent.
Performance of funds vs sectors and benchmark over 10yrs
Source: FE Analytics
The only fund run by an FE Alpha Manager to achieve the feat of top quartile returns and Sharpe ratio in the IA UK Equity Income sector with a FE Risk Score of more than 100 is Schroder Income.
The £1.9bn fund is also run by Kirrage and Murphy and aims to use their strong value approach with an income strategy.
The fund, which currently yields 3.45 per cent and has an OCF of 0.91 per cent, has returned 108.61 per cent over the past decade and has a Sharpe ratio of 0.26, ahead of the IA UK Equity Income average of 0.14.