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The most sold UK All Companies funds since Brexit

07 August 2017

In the first of a series, FE Trustnet looks at the UK funds that have suffered the heaviest net outflows over the past 12 months.

By Jonathan Jones,

Reporter, FE Trustnet

Invesco Perpetual High Income, M&G Recovery and AXA Framlington UK Select Opportunities were among the most sold UK All Companies funds over the past year, according to the latest FE Trustnet series.

The IA UK All Companies sector was the least popular sector with investors during 2016, experiencing net outflows of £5.4bn, while the UK equites asset class as a whole lost £4.9bn.

As the below chart shows, the UK All Companies sector in the FE Analytics unit trust universe underperformed the FTSE All Share by 5.59 percentage points last year.

Performance of index vs sector in 2016

 

Source: FE Analytics

Indeed, just 19 per cent of funds outperformed the index as a shift to value stocks such as financials, miners and oil companies hurt many active fund managers.

However, investors were perhaps more concerned by the result of the EU referendum in June, as both Europe and the UK were the most sold equity regions last year.

While markets have recovered from the immediate sell off, as the above chart shows, many investors remain nervous over the outlook for the UK economy away from the trade bloc.

As such, below we highlight the five UK All Companies funds that have been hit the hardest by this shift away from UK equities funds.

 

Scottish Widows UK All Share Tracker

Highlighting that investors were more concerned about the outlook for UK companies than the underperformance of active managers was the fact that the most sold fund last year was a tracker.

While there has been a structural shift towards passive investing in recent years, as active management fees and performance have come under increasing scrutiny, not all passive vehicles are made equal.

The £5.9bn Scottish Widows UK All Share Tracker fund lost £2.2bn in the 12 months to the end of June 2016, with almost £1.5bn lost during the second half of 2016.

However, the fund has only around £950m less in assets under management (AUM) than it did a year ago thanks to a £1.3bn uplift from its performance over the period.

Performance of fund vs benchmark in 2016

 

Source: FE Analytics

Indeed, as the above chart shows it was a strong year for the fund, which returned 15.59 per cent and had a monthly tracking error to the FTSE All Share of 4.87.

The three crown-rated passive fund has a yield of 3.2 per cent and a clean ongoing charges figure (OCF) of 0.37 per cent.


Invesco Perpetual Income and High Income

The active fund that has seen the largest outflows over the 12 months to the end-June 2017 is Invesco Perpetual High Income run by FE Alpha Manager Mark Barnett.

Over the period the fund has lost £1.4bn in flows, although it has just £100m less in AUM as the performance effect on fund largely covered the outflows.

His £5.6bn Income fund meanwhile saw the fifth largest net outflows at £737m, though again its AUM fell just £90m thanks to strong performance.

Outflows of both funds have been fairly consistent over the past year, with the High Income fund losing £734m in the first half of this year and £682m in the second half of last year.

The Income fund lost £404m in H1 2017 and £333m in the latter half of 2016.

The funds may have been hit by negative sentiment to UK equity income funds*, which Barnett’s funds have resided in previously, but left some years ago.

The equity income sector previously had a yield target of 110 per cent of the FTSE All Share though these criteria have now been relaxed, with a number of funds moving back into the sector. As yet neither of the Invesco funds have returned.

Last year the funds materially underperformed the FTSE All Share and UT UK All Companies sector, as the below chart shows.

Performance of fund vs sector and FTSE All Share in 2016

 

Source: FE Analytics

Indeed, the High Income fund returned 3.84 per cent while the Income fund returned 2.88 per cent as the FTSE All Share rose by 16.75 per cent and the average sector fund increased by 11.16 per cent.

The manager was caught out somewhat by the return of the value trade which took place last year as Barnett focuses on quality growth companies.

His largest holdings including the tobacco stocks, healthcare and financial services companies, which all struggled last year as miners, oil stocks and banks bounced back.

Invesco Perpetual Income has a yield of 3.02 per cent and an OCF of 0.91 per cent. Invesco Perpetual High Income has a yield of 3.11 per cent and an OCF of 0.92 per cent.

*In an upcoming article FE Trustnet will look at the UK Equity Income sector in more detail.


M&G Recovery

The active fund that has seen the second-most outflows over the past 12 months is M&G Recovery run by Tom Dobell.

The fund, which has a strong value tilt, was a top quartile performer in the sector last year, returning 20.69 per cent, as the below chart shows.

Performance of fund vs sector and benchmark in 2016

 

Source: FE Analytics

However, despite being a top quartile performer over one year, the fund has had a poor showing over the longer term, and was bottom quartile over three, five and 10 years.

Indeed, it has been a bottom quartile performer in four of the past five calendar years and is also in the bottom quartile so far in 2017.

The £3.1bn fund has lost £951m in the past year in outflows, though with performance included it is only £150m below its £3.27bn in AUM last year. In the first half of 2017 the fund lost £492m.

The fund has a yield of 1.05 per cent and an OCF of 0.9 per cent.

 

AXA Framlington UK Select Opportunities

The fourth most sold fund identified by FE Trustnet was AXA Framlington UK Select Opportunities, managed by industry veteran and Nigel Thomas.

The fund saw £803m in outflows over 12 months although performance made positive contributions of £633m, meaning the £3.49bn fund has £169m less in AUM than it had one year ago. The fund has lost £324m so far this year.

The fund struggled in 2016 returning just 4.05 per cent, with the manager noting that it was one of the worst of 15 years on the fund.

It has also struggled this year so far, returning 5.46 per cent: placing it in the bottom quartile of the UT UK All Companies sector and 2.68 percentage points behind the FTSE All Share.

The fund is 44.42 per cent weighted to the FTSE 100 while 36.62 per cent in the FTSE 250, giving the fund a large mid-cap bias.

Its largest position on a sector basis is industrials (33.72 per cent) with consumer services, healthcare and financials also holding a double-digit weighting in the fund.

The fund has a yield of 1.81 per cent and an OCF of 0.93 per cent.

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