More often than not, the average fund in the IA UK All Companies sector has failed to beat the FTSE All Share index over successive five-year periods, according to research by FE Trustnet, but a number of its members have much stronger track records of outperformance.
In a recent study, we reviewed the main Investment Association equity sectors to find out which had the strongest track record, on average, of outperforming the market over rolling five-year periods going back to the start of 2000.
While the average IA UK Smaller Companies fund had the strongest track record and the IA North America sector was the weakest, the IA UK All Companies sector sat in the middle of the table after outperforming the FTSE All Share in 39 per cent of the 51 five-year periods we examined.
Rolling five-year returns of sector vs index
Source: FE Analytics
However, there is no such thing as the ‘average’ fund and a closer look at the sector shows that some of its members have a much better history of beating the FTSE All Share over rolling five-year time frames.
Two funds have managed to do this in all of the 51 periods we examined. This is not too much of a surprise with one, given its areas of focus: Franklin UK Mid Cap is a pure FTSE 250 fund.
Over the following pages, we will reveal the only other fund to beat the FTSE All Share without fail over rolling five-year periods as well as several others that have come very close indeed.
Schroder Recovery
Source: FE Analytics
The £1bn Schroder Recovery fund, which is headed up by the FE Alpha Manager duo of Kevin Murphy and Nick Kirrage, has outperformed the FTSE All Share in 48 of the 51 five-periods looked at in this study – giving it a 94 per cent success rate. Its highest level of outperformance saw it beat the index by 97.04 percentage points while its weakest was a 5.73 percentage point undershoot. Over the entire period examined (1 January 2000 to 30 June 2017), its total return was 475.41 per cent; the FTSE All Share was up 122.17 per cent over the time while the average IA UK All Companies fund made 121.36 per cent. As its name suggests, the fund has a value style with the managers focusing on the long-term value of a stock rather than the potential for short-term gains. Schroder Recovery has an ongoing charges figure (OCF) of 0.79 per cent.
BlackRock UK Special Situations
Source: FE Analytics
Roland Arnold and Luke Chappell’s £737.4m BlackRock UK Special Situations fund has beaten the index in 49 of the 51 rolling five-year periods, or 96 per cent of the time. Its total return since the start of 2000 has been 347.56 per cent, which is comfortably ahead of both the FTSE All Share and the IA UK All Companies sector. The portfolio does have an emphasis on small- and mid-caps but has exposure to FTSE 100 names, with the likes of Relx Group, Royal Dutch Shell, British American Tobacco, Rio Tinto and HSBC being among its biggest holdings. Since the start of 2000, the largest five-year outperformance of the FTSE All Share has been 53.23 percentage points while its biggest underperformance was 8.81 percentage points. BlackRock UK Special Situations has a 0.92 per cent OCF.
Invesco Perpetual High Income & Invesco Perpetual Income
Source: FE Analytics
Given the similarities between these two funds, we’ve covered them in one entry. Invesco Perpetual High Income beat the FTSE All Share in 49 of the periods (the highest being 79.94 percentage points over the index, the lowest 14.11 percentage points below it). Invesco Perpetual Income is slightly ahead after outperforming the index in 50, or 98 per cent, of the rolling five-years (the highest relative performance being 81.80 percentage points over; the lowest being 13.46 per cent under). FE Alpha Manager Mark Barnett runs the portfolios, but for the bulk of their track record they were headed up by star manager Neil Woodford. Invesco Perpetual High Income has a 0.92 per cent OCF while Invesco Perpetual Income’s is 0.91 per cent.
Kames Ethical Equity
Source: FE Analytics
Unlike many of the funds in the sector, this has been headed up by its current manager for the entire period covered by this research: Audrey Ryan has managed the £601m Kames Ethical Equity fund since the start of 1999. It has beaten the FTSE All Share in 50, or 98 per cent, of the 51 five-year periods. Its highest five-year outperformance was 53.88 percentage points above the FTSE All Share while the lowest was just 4.23 percentage points below it. The fund’s ethical screen does not permit it to invest in sectors such as intensive farming, arms manufacturing, pornography or gambling. Between 1 January 2000 and 30 June 2017, the fund made 197.57 per cent. Kames Ethical Equity has an OCF of 0.79 per cent.
AXA Framlington UK Select Opportunities
Source: FE Analytics
Nigel Thomas’ £3.5bn AXA Framlington UK Select Opportunities fund has also outperformed the FTSE All Share in 50 of the 51 periods. Its highest five-year outperformance was 57.65 percentage points over the FTSE All Share’s return while it lagged the index by just 5.69 percentage points in the one occasion it did lag the index. Thomas is a highly respected manager with more than 30 years of experience in analysing securities and markets. Square Mile Investment Consulting & Research said: “This may be one of the rare occasions where past performance can tell us something about the skills of the fund manager. Mr Thomas has a track record spanning over 25 years and remarkably, he has beaten the benchmark return by an average of almost 6 per cent per annum.” Since 1 January 2000, the fund has generated a total return of 231.76 per cent. AXA Framlington UK Select Opportunities has an OCF of 0.93 per cent.
Marlborough UK Multi-Cap Growth
Source: FE Analytics
The only other fund aside from Franklin UK Mid Cap to beat the FTSE All Share in all 51 five-year periods was Marlborough UK Multi-Cap Growth, which is headed up by FE Alpha Manager Richard Hallett. The £160.7m fund made 323.62 per cent between the start of 2000 and the end of June 2017. In the periods examined in this research, it beat the index by 121.57 percentage points in its strongest relative period; even in its weakest period it was ahead of the FTSE All Share by 14.63 percentage points. The five FE Crown-rated fund invests across the market cap spectrum with 15.8 per cent of its portfolio currently investing in mega-caps, 17 per cent in large-caps, 43.6 per cent in mid-caps and 19.2 per cent in small-caps. Marlborough UK Multi-Cap Growth has a 0.85 per cent OCF.
Source: FE Analytics