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The UK funds with the strongest returns after 10 years of QE

06 March 2019

After a decade of quantitative easing in the UK, FE Trustnet discovers which funds have generated the best returns for their investors.

By Gary Jackson,

Editor, FE Trustnet

In the 10 years since the UK launched quantitative easing to tackle the financial crisis, smaller companies strategies have made the strongest returns – with the best performing fund up more than 660 per cent.

On 5 March 2009, the Bank of England introduced quantitative easing – or QE – in the UK and cut interest rates to 0.5 per cent, which was a historic low at that point. A few days earlier, the FTSE 100 had hit rock bottom but the decade of ultra-loose monetary policy that followed led to some strong returns for UK assets.

Over the past 10 years, the FTSE All Share has generated a 303.65 per cent total return while the Bloomberg Barclays Sterling Gilts index is up 167.07 per cent. Within the equity market, small- and mid-caps have outperformed large-caps by some margin.

Performance of UK sectors under QE

 

Source: FE Analytics

This is reflected in the chart above, which shows the 10-year total returns of the average fund in the various UK-focused Investment Association sectors. The average IA UK Smaller Companies fund has made close to 460 per cent under QE, while the worst performing sector – IA UK Gilts – is still up by more than 150 per cent.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “At the beginning of 2009, it looked like the whole financial system could topple, and take the global economy with it, and the actions of central banks across the world at least steered us away from that catastrophe.

“Hindsight tells us the beginning of 2009 was actually a tremendous time to invest in the stock market, despite extremely negative sentiment. It goes to show the best times to invest are often when it feels most uncomfortable.”


We reviewed the performance of all the individual funds in the seven UK-focused sectors charted above and found that Fidelity UK Smaller Companies made the highest total return over the period in question: 666.53 per cent.

Headed up by FE Alpha Manager Alex Wright and Jonathan Winton, the £364m fund is run with a contrarian investment style where the managers look for unloved stocks that they believe to be entering a period of positive change.

Square Mile Consulting & Research, which gives the fund an ‘AA’ rating, said: “This approach has proved to be very successful since the fund's launch and though there will be periods when this style of investing is out of favour, we think it should provide investors with impressive returns over the long term.”

 

Source: FE Analytics

IA UK Smaller Companies funds dominate the list of the best performers under QE, as can be seen above. Some of the funds from outside of the sector have achieved their high returns by delving into the small-cap space.

Slater Growth is an example of this. It resides in the IA UK All Companies sector but since a mandate change in 2010 has tended to have most of its exposure to UK small- and mid-caps. Indeed, regression analysis suggests the vast majority of the £503.8m fund’s 10-year returns have come from outside of the FTSE 100.

IA UK All Companies funds such as Standard Life Investments UK Equity Unconstrained and SVM UK Opportunities have also outperformed by looking outside of large-caps and towards smaller companies for opportunities.


This isn’t true of all the sector’s members, however. LF Lindsell Train UK Equity, for example, has been one of the strongest UK funds in the decade of QE and its long-term, concentrated portfolio has a significant bias to the FTSE 100.

Two IA UK Equity Income funds have made it onto the above list: Unicorn UK Income and MI Chelverton UK Equity Income.

Both of these funds differ from their average peer in their preference for smaller companies. Most UK equity income funds focus on dividend-paying stalwarts in the FTSE 100 but Unicorn and Chelverton have achieved consistently strong returns without much exposure there.

Our research shows that the equity sectors – IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies – have made by far the biggest returns over the past decade.

Outside of these three peer groups, the highest returns came from Jupiter Monthly Income (253.1 per cent), Threadneedle Monthly Extra Income (218.72 per cent) and M&G UK Income Distribution (177.26 per cent), all of which reside in the IA UK Equity & Bond Income sector.

Insight UK Index Linked Bond was the best fixed income fund with a total return of 152.75 per cent, followed by AXA Sterling Index Linked Bond (138.86 per cent) and Newton Index Linked Gilt (138.38 per cent). Newton Long Gilt made the IA UK Gilts sector’s highest return at 118.66 per cent.

When it comes to the IA UK Direct Property sector, TIME Investments Freehold Income leads the way with a 113.36 per cent total return, followed by Royal London Property (106.21 per cent) and L&G UK Property (105.34 per cent).

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.