The four young UK funds shooting the lights out in their first three years

TM CRUX UK Special Situations, Ninety One UK Sustainable Equity and FP Octopus UK Multi Cap Income headline the list of young UK funds making strong initial returns for investors.

In this series, Trustnet looks at the funds launched in 2018 that have risen to the top quartile of their sector over the past three years. Having previously tackled the multi-asset and US sectors, this week we looked at the domestic market.

In the UK, three funds have already risen to the top of the IA UK All Companies sector, while there was just one from IA UK Equity Income sector to achieve the feat.

Octopus UK Multi Cap Income was the lone top young fund, returning 59.8% over the past three years, the best performance in the sector.

Managed by Chris McVey, Dominic Weller and FE fundinfo Alpha Manager Richard Power, the £82.8m fund invests in dividend-paying stocks from across the market-capitalisation spectrum, with a skew towards the mid and small-cap end of the market.

Indeed, 15.6% is invested in stocks worth more than £3bn, with 16.9% in companies valued between £1bn and £3bn. The remainder is in firms that are worth less than £1bn.

Total return of funds vs sector and FTSE All Share over three years

Source: FE Analytics

In the latest factsheet, the managers said that the market is largely looking past Omicron, but further variants and the “inevitable macro pressures” – such as interest rate rises and fiscal tightening globally – will “no doubt” cause further volatility in 2022.

“Regardless, we remain committed to building a portfolio that can grow earnings and dividends ahead of the market through the cycle and remain excited by prospects,” they said.

The fund achieved an FE fundinfo Crown rating of five – the highest available – at the first time of asking in the latest rebalance earlier this month.

Turning to the non-income funds, TM CRUX UK Special Situations has been the best performer among young funds in the IA UK All Companies sector, returning 46% over the past three years.

Managed by Richard Penny, who moved from LGIM to launch the new fund in 2018, the £227.6m portfolio has benefited in recent years from two slight overweight positions: value stocks and mid-caps.

Around 44% of the portfolio is invested in companies with a market capitalisation of between £500m and £5bn, with food, beverage and tobacco, financials and capital goods the largest sector weightings (32% of the total portfolio).

This strategy has paid off over the past two calendar years (2020 and 2021), when the fund made top-quartile returns, shaking off a below average year in 2019.

Total return of funds vs sector and FTSE All Share over three years

Source: FE Analytics

Also on the list is the £143.7m Ninety One UK Sustainable Equity fund, run by FE fundinfo Alpha Manager Matt Evans. The fund achieved a five-crown rating at the first time of asking in the rebalance this month, after returning 40.9% over the past three years.

The fund has benefited from strong growth in the sustainable investing sector, making top-quartile returns in 2019 and 2020, although it struggled last year as the market rotated towards value stocks such as oil and gas companies, which are not typically included in environmental, social and governance (ESG) funds.

Last up is the £11.8m Ocean UK Equity fund, which has made 31.2% over the past three years despite a poor start to 2022, where the fund has lost 12.6% – one of the worst in the sector.

Part of the fund’s success has been its ability to invest overseas, with 13.5% in the US and 4.9% in Europe. This paid off in 2020 and 2021 when some of its international stocks, such as Microsoft and Alphabet generated very high returns.

But these stocks have come off the boil at the start of this year as they have been hit hard by rising inflation and potential interest rate hikes, which have increased the discount rate on their future earnings, pushing down share prices and contributing to the fund’s recent poor performance.