TB Evenlode Income has had a torrid year, sitting as one of the worst UK funds investors could have owned, but commentators were unphased by its recent poor performance and chose to focus on the long term when Trustnet asked if investors should buy, hold or sell the portfolio.
Over the past 12 months the fund has been the sixth-worst fund among its IA UK All Companies peers, returning 20.6% as its quality growth strategy has taken a backseat to the resurgent value stocks.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
These formerly unloved companies have done well this year as investors have projected the end of the pandemic, boosting the likes of airlines, retailers and restaurant chains – companies that do not fit with the process of Evenlode managers Hugh Yarrow and Ben Peters.
Ryan Hughes, head of active portfolios at AJ Bell, said he was unsurprised therefore by the recent poor performance, noting that he would have been “concerned” if the fund had performed well this year.
This would have signalled a much bigger problem as it would show the managers were not following the investment process.
Sam Buckingham, investment analyst at Kingswood Group, pointed out that the fund’s focus on large-caps has also dampened performance this year.
He said that the average IA UK All Companies fund generally has a higher weighting to small and mid-caps, but TB Evenlode Income focuses on large-cap blue chips. Indeed 81% of the fund is invested in large-caps, with 16% in mid-caps and 1.1% in small-caps.
Some of its blue-chip, large-cap holdings include consumer brands company Unilever, beverage brand Diageo, pharmaceutical developer GlaxoSmithKline and analytics provider Relx.
The lower end of the market-cap scale has fared better than large-caps in the past year, shown in the graph below.
Performance of FTSE 100, FTSE 250 and FSTE Small Cap over 1yr
Source: FE Analytics
For a fund holding an overweight to large-caps this has subdued performance during that time.
But, this was all secondary to the long-term appeal of the fund as all three commentators still backed it.
Indeed Buckingham said: “Despite its disappointing performance of late, we believe the fund remains a good option for UK investors looking for quality-growth exposure.”
Rob Morgan, chief analyst at Charles Stanley Direct, agreed, adding that because Yarrow and Peters have such a strict set of criteria “performance therefore often deviates from the wider market”, which is exactly what happened this past year.
He said the fund’s performance should pick back up if the outperformance of more cyclical assets faded or if bond yields fall back. He said: “Rising yields have hampered the share prices of companies cherished for the quality of their cashflows.”
Hughes said that he had “no concerns over short-term performance”, and that TB Evenlode Income remained on AJ Bell’s Favourite Fund list.
The TB Evenlode Income fund has been a very strong performer long-term, generating the 35th best returns out of nearly 200 IA UK All Companies funds over 10 years.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
It was soft-closed in 2018, a decision the fund group said was a long-term measure to protect existing investors. It introduced a 5% initial charge for any new investors as a result, although this is typically waived for retail investors using fund shops. Currently the fund sits at £3.6bn, a £1.6bn increase since it was initially soft-closed.
The fund has an FE fundinfo Crown rating of Five and ongoing charges figure (OCF) of 0.87% and a 2.4% dividend yield.