The macro fundamentals that dictated the 2008 to 2009 crisis are, of course, very different to those that face the UK today. Global banks are in far better shape and a crash on the scale of Lehman Brothers seems unlikely.
That said, a potential break-up of the eurozone and continued unrest in the Middle East mean that a significant dip in equity markets is still a real risk.
Performance of indices during 2008 to 2009 recession
Source: FE Analytics
Looking at the best-performing funds between July 2008 and August 2009 when the UK was last in recession, the list is dominated by volatile small cap funds that made huge gains during the rebound in the first and second quarters of 2009. The t1ps Smaller Companies Growth fund, for example, delivered more than 46 per cent during this time.
Small cap funds tend to lead economies out of a recession and perform best following a period of turbulence in markets.
Recession doesn’t necessarily dictate poor performance, therefore. Although the UK economy shrunk in the first quarter of this year, in general UK equity funds had a very strong run.
For investors who remain pessimistic but who want to maintain some equity exposure, UK fund managers that have proven themselves during periods of diminishing growth are likely to be a big draw.
While those that rallied strongly during the 2009 rebound top the charts for the last recession, there are a handful of multi-asset funds that managed to generate consistent returns and low volatility throughout the entire five quarters.
Performance of funds vs FTSE All Share
Source: FE Analytics
FE Alpha Manager Martin Gray has an excellent reputation during poor market conditions, vastly outperforming his peer group during both the dotcom crash and 2008 to 2009 crisis.
During the last recession, the manager’s CF Miton Special Situations and CF Miton Strategic portfolios were both among the best-performing across the multi-asset sectors. The latter returned 11.92 per cent over the period, with very low volatility.
Gray remains cautious in the current environment and says he expects poor GDP growth and shocks to plague the market for some time to come. His £225m portfolio currently has 30 per cent of its assets invested in equities.
The highly rated CF Ruffer Total Return fund, headed up by FE Alpha Managers David Ballance and Steve Russell, was another standout performer. Although the portfolio was more volatile than CF Miton Strategic and Sebastian Lyon’s Trojan fund, it managed to deliver 24.54 per cent with below-average volatility.
The five-crown rated IM Matterley Regular High Income was the least volatile of the four over the period, although its lower exposure to equities means that it is always likely to lag its rivals during a market rebound.