TB Evenlode Income, Lindsell Train UK Equity and CFP SDL Free Spirit are among the UK equity strategies that have exhibited the lowest downside capture ratios over the past five years, according to data from FE Analytics.
As financial markets continue to experience volatility amidst rising inflation expectations and growing international political uncertainty, investors may wish to look to UK strategies that could be well placed to mitigate any downward moves in equity markets.
Indeed year-to-date, the UK has been the least affected equity market when compared against the other major equity market indices.
Its high weighting towards mining, energy and value stocks have helped support the FTSE All Share relative to other equity markets.
Performance of major indices year-to-date
Source: FE Analytics
For investors who wish to limit their global equity risk via UK strategies, Trustnet identified the UK funds with the lowest downside capture ratio over the past five years – a period which includes previous high volatility events such as Brexit and the coronavirus pandemic.
Out of the 355 funds across the Investment Association’s UK All Companies sector, UK Smaller Companies sector and UK Equity Income sector, there were 27 UK equity funds with a downside capture ratio of 85 and below.
This ratio measures how much a fund loses compared to the average fund in its peer group in periods when the overall market is declining.
This means that during periods of market declines, these funds only experienced 85% or less of the downward moves when compared against their peer group.
Source: FE Analytics
The £101m CFP SDL Free Spirit fund stands out as a strategy with the lowest downside capture ratio of 63.3 over the past five years.
Although the fund is currently run by Keith Ashworth-Lord, manager of the popular CFP SDL UK Buffettology fund, it was previously managed by former Schroders fund manager Rosemary Banyard until April 2019, before it was taken over by Andrew Vaughan who stepped down in 2021 after less than two years in the role.
Ashworth-Lord – who has been deputy manager since mid-2019 – has since stepped in to take charge of the fund using his ‘Business Perspective Investing’ approach which is based on the strategy of Berkshire Hathaway chairman and renowned value investor Warren Buffett.
The CFP SDL Free Spirit fund differs from the £1.3bn Buffettology fund in that it focuses on AIM-listed and small-cap UK stocks. Although its performance has fallen to the bottom-quartile over the past year compared to the broader market, the fund is top-quartile over three- and five-years.
Elsewhere, the £3.5bn TB Evenlode Income fund was another notable fund that exhibited a low downside capture ratio of 66.9 over the past five years.
Managed by FE fundinfo Alpha Manager Hugh Yarrow, alongside Ben Peters, this fund focuses on investing in cash-generative businesses that they perceive to be of high quality.
They look for three characteristics when determining quality: asset-light business models; high barriers to entry which can’t be disrupted easily; and price inelastic goods – where demand is less affected by changes in price.
Its performance has held up well over the past five years where it remains top-quartile of its peer group, and over the short-run it has also held up relatively well, in the second quartile over a six month and one-year timeframes.
Another notable fund that featured in the list was the £2.3bn Trojan Income fund. Run by Blake Hutchins – its presence may be unsurprising given the asset manager is known to place capital preservation at the core of its investment process.
However, this has meant that the performance of the fund has lagged that of its peers – where it is bottom quartile over three- and five-years.
Nick Train’s £5.2bn LF Lindsell Train UK Equity fund also featured in the list above, with a downside capture ratio of 71.2. However, this falls below the fund’s upside capture ratio of 70.6, which means that the fund has captured less of the upward moves in the broader market.
Train has been under pressure lately amidst lagging performance of his quality-growth strategy, which has fallen behind that of his other quality-growth peers as well as the broader sector.
Although the fund has fallen to the third quartile over the past three- and one-year time frames, it remains top quartile over the past five years.
Another fund giant that made the list was the £3bn Royal London Sustainable Leaders Trust, which exhibited a downside capture ratio of 72.4, while maintaining a relatively larger upside capture ratio of 92.11.
Run by Mike Fox, George Crowdy and Sebastien Beguelin, this fund invests in UK companies that are deemed to make a positive contribution to society, adhering to Royal London’s ethical and sustainable investment policy.
Although the fund is top-quartile over the past five-, three- and one-year periods – it has dipped recently to third quartile over the three- and six-month periods.
The £110m Premier Miton UK Smaller Companies fund also stands out as a strategy with a low downside capture ratio of 81.6.
Managed by Gervais Williams and Martin Turner, the fund has benefited from the managers’ flexible approach.
The small-cap managers have successfully used FTSE put options to help mitigate the portfolio from market downturns as it did most recently during the coronavirus pandemic crash.
Its performance can vary depending on which timeframe is used, as it is top-quartile amongst its small-cap peers over five and three years, but over the past year it is bottom quartile. However, it is top-quartile over the past three and six month periods.