Since the referendum on the UK’s EU membership rocked the country more than two years ago, the UK stock market has struggled to replicate the kind of returns that their international peers have delivered.
With a great deal of uncertainty hanging over the UK economy and a deadlocked Parliament, fund managers have had much to consider when navigating the domestic market.
Of the three main equity sectors it is the IA UK Smaller Companies which has had the best time of things, with the average fund up by 30.54 per cent since the EU referendum at the end of June 2016, outperforming the FTSE All Share’s total return of 24.81 per cent (to 26 February).
Performance of sectors vs index since EU referendum
Source: FE Analytics
Conversely, the two other UK equity sectors underperformed the index, with the average IA UK All Companies member up by just 19.97 per cent and the average IA UK Equity Income fund even further behind at 16.01 per cent.
Tilney Investment Management Services’ Jason Hollands said part of the underperformance of UK equity strategies in recent years has largely come as a result of their mid-cap exposure. 
“The real problem area has been in the mid-cap space,” he explained. “Over the long run, mid-caps have been the stand out performing part of the UK market but not over the past three years.
“The FTSE 250 has really seriously lagged larger companies; it has also lagged small cap indices as well. That is where a lot of active managers have historically played and had a bias because there are more individual stock opportunities there and its reasonably liquid.”
However, the more domestically focused mid-cap space has suffered as sentiment towards the UK has soured.
“At the other ends of the market, the larger companies of FTSE 100 have over 70 per cent of their revenue outside of sterling so currency weakness has flattered returns,” said Hollands (pictured).
“Once you get into smaller companies space there is a higher representation of companies in growth sectors like technology, which is very underrepresented in the UK market further up the market cap spectrum.”
With a great deal of uncertainty yet to be resolved, FE Trustnet takes a closer look at the UK equity sectors to find out which funds have performed best since the poll on EU membership.
IA UK Smaller Companies
More than half of the IA UK Smaller Companies have performed better than the FTSE All Share index since the referendum. It should be noted, however, that the index represents 98 per cent of the UK stock market capitalisation, around 80 per cent of which is made up of FTSE 100 companies.
The best performer of the sector has been FE Alpha Manager Paul Mumford’s TM Cavendish AIM fund, which has made an 94.84 per cent total return over the period against a 30.1 per cent gain for the FTSE AIM All Share benchmark.
The £65.6m five FE Crown-rated fund targets growth through investment in the Alternative Investment Market (AIM), made up of early-stage growth companies as well as venture capital-backed firms.
Performance of fund vs sector & benchmark since EU referendum
Source: FE Analytics
As such, veteran investor Mumford’s portfolio includes a number of names that some investors may be unfamiliar with and further up the risk scale.
Another top performer from the sector is the £388.7m Jupiter UK Smaller Companies fund – also five FE Crown-rated – managed by James Zimmerman. Zimmerman – who has overseen the fund since June 2015 – invests more broadly than the Cavendish fund, but also includes some AIM companies among his holdings. It is up by 69.79 per cent since the referendum.
However, not all small-cap funds have been as successful. There are several funds from the sector that have failed to keep pace with their peers.
For example, the £282.5m L&G UK Smaller Companies Trust – managed by Rod Oscroft – has made a total return of just 4.65 per cent since the referendum.
Elsewhere, the £18.7m MI Downing UK Micro-Cap Growth fund overseen by Judith MacKenzie is up by just 7.16 per cent over the same period.
IA UK All Companies
Just under a quarter of the 263 funds in the IA UK All Companies sector have outperformed the FTSE All Share index since the referendum, although none with the same degree of success as the higher growth smaller companies sector.
The best performer over the period is the MI Chelverton UK Equity Growth fund, which has delivered a total return of 53.98 per cent.
The five FE Crown-rated fund is managed by James Baker and Edward Booth and has a greater small-to-mid cap focus than many of its peers.
Around two-thirds of its 98 holdings have a market cap of less than £500m, with the largest holding making up just 2 per cent of the £286m portfolio.
Next on the list of top performers is another five FE Crown-rated fund: MFM Bowland. The £16.3m strategy is managed by Hargreave Hale’s Leon Shuall and is one of the top performers based on its ability to consistently outperform its peers across a range of metrics.
Rounding out the top three is a well-regarded fund among investors: CFP SDL UK Buffettology. Overseen by FE Alpha Manager Keith Ashworth-Lord, the £627m fund has made a return of 48.21 per cent.
Ashworth-Lord employs a long-term, value-orientated process similar to Warren Buffett’s investing companies which typically have enduring operating franchises, high returns on equity, strong free cash flow and experienced management teams. It was one of the few funds from the sector last year that avoided making losses.
Performance of fund vs sector & benchmark since EU referendum
Source: FE Analytics
At the other end of the performance table are several equity income funds, with the worst performer is Quilter Investors UK Equity Income II, which has made a loss of 20.07 per cent. The fund is managed by Woodford Investment Management, the boutique firm founded by FE Alpha Manager Neil Woodford.
Woodford’s own LF Woodford Equity Income fund also features at the foot of the table having made a 5.07 per cent loss, while his successor at Invesco – Mark Barnett – has seen his Invesco UK Strategic Income fund fall by 3.44 per cent.
IA UK Equity Income
There were fewer outperformers of the FTSE All Share to be found in the IA UK Equity Income sector, with just eight of its 90 constituents managing this.
The best performer since the referendum was FE Alpha Manager Henry Dixon’s £783.6m Man GLG UK Income fund, with a total return of 34.4 per cent.
The four FE Crown-rated income fund also targets some capital growth, with analysts at FE Invest highlighting the manager’s long-term, patient approach to investing, recommending performance be judged over a minimum of three years.
Other top performers include Kevin Murphy and Nick Kirrage’s £2.3bn Schroder Income and veteran investor Robin Geffen’s £212.7m Neptune Income funds with respective returns of 32.83 per cent and 30.44 per cent.
Sitting alongside the five FE Crown-rated Schroder Income fund was its sister fund, the £1.2bn Schroder Income Maximiser – that sacrifices some capital gains for higher income – which was up by 26.72 per cent.
While there were fewer funds outperforming the index, there was only one fund making a loss over the period, however. The £4m Smith & Williamson UK Equity Income fund, managed by Mark Swain and Mark Boucher, fell by 2.47 per cent over the period.