Invesco Perpetual’s equity income strategies, Fidelity Special Situations and Rathbone Income are some of the UK equity funds that have held up best when the UK market has sold off, FE Trustnet research suggests.
The current market volatility, sparked by a range of issues such as the US/China trade spat, rising US interest rates and Brexit, has reminded investors that – despite some years of relatively easy double-digit gains – markets do not always rise relentlessly and one eye needs to be kept on downside protection.
In light of this, FE Trustnet attempted to find out which funds from the IA UK All Companies and IA UK Equity Income sectors had managed to make money when the FTSE All Share posted a negative quarter.
Source: FE Analytics
After reviewing performance in the 75 quarters spanning 1 January 2000 through to 30 September 2018, we found that the FTSE All Share made a negative return in 27 of them. The average fall in these quarters stands at 5.72 per cent while it lost 19.64 per cent in the summer of 2002, its worst three-month period.
As would be expected, none of the funds in the two sectors were able to make positive returns in all of the quarters when the FTSE All Share index sold off. However, some have done better than might be expected, given the sectors’ overwhelming focus on the UK stock market.
Looking at the 134 funds with a track record that goes back to at least 1 January 2000, just nine funds have made a positive return in more than 25 per cent of the FTSE All Share’s down quarters. In total, 32 have dodged the market’s sell off in over 20 per cent of the quarters.
Sitting firmly at the top of the list is Invesco High Income (UK). This £8bn fund (which until recently was called Invesco Perpetual High Income) has been headed up by FE Alpha Manager Mark Barnett since March 2014, with UK equity veteran Neil Woodford – also an FE Alpha Manager – running the portfolio prior to this.
Our data shows the fund has posted a positive return in 40.7 per cent of the 27 quarters that the FTSE All Share has been in negative territory (meaning it made money in 11 of these quarters). Its average return in these 27 periods stands at a 2.65 per cent loss, which is less than half of the index’s 5.72 per cent average fall.
Under both Barnett and Woodford, Invesco High Income (UK) has been managed with a pragmatic, valuation-oriented approach and has built a reputation for protecting on the downside. Woodford’s refusal to buy tech in the dotcom bubble and banks ahead of the global financial crisis proved prudent with hindsight while under Barnett the fund has just posted a small return in 2018’s third quarter, when the market was down.
Source: FE Analytics
The table above shows all the IA UK All Companies and IA UK Equity Income funds with a history going back to the start of 2000 and a track record of making positive returns in at least 20 per cent of the FTSE All Share’s down quarters.
It’s worth noting that Invesco Income (UK), which is in second place, was managed by Woodford and then Barnett, while Barnett has run Invesco UK Strategic Income (UK) since January 2006.
There’s several other well-known UK equity managers appearing on this list.
Fidelity Special Situations has been run by the likes of Anthony Bolton, Sanjeev Shah and (currently) Alex Wright since its launch in 1979 and has a strong following among both private and professional investors. A recent FE Trustnet article looked at why FE Alpha Manager Wright thinks now is a good time for investors to reallocate to UK equities.
AXA Framlington UK Select Opportunities is headed up by Nigel Thomas (with Chris St John taking over in 2019 on Thomas’ planned retirement) while Carl Stick has been at the helm of Rathbone Income since 1 January 2000.
Our research also found that nine of the 134 funds with a long-enough track record have never made a positive return when the FTSE All Share had a negative quarter.
It should not be too surprising, however, that these funds are largely index trackers which are not expected to outperform the market. Janus Henderson UK Index, Virgin UK Index Tracking, Fidelity Index UK and Aviva Inv UK Index Tracking are examples.
The above research only looked at funds with a track record covering the full 27 down quarters since 2000. This significantly reduces the number of eligible funds so we widened the search to those with histories spanning the ast 16 to 26 down quarters (which captures the 2008 crash).
Source: FE Analytics
Trojan Income tops the list here; its track record covers 19 FTSE All Share down periods and the fund made a positive return in eight – or 42.1 per cent – of them. Headed up by FE Alpha Manager Francis Brooke, like all Troy Asset Management funds, this £2.7m portfolio is managed with a firm eye on capital preservation.
Square Mile Investment Consulting & Research, which gives the fund an ‘AA’ rating, said: “The managers view risk as the potential for permanent capital loss and rightly take pride in this strategy's capacity to provide protection in more volatile periods.
“In the same vein, however, it also has the propensity to lag the market in more aggressive upswings. However, the consistency of returns and protection in down markets should compound into a rewarding investment for investors over time.”
Other well-known funds appearing on the above list include Unicorn UK Income, LF Lindsell Train UK Equity, Standard Life Investments UK Equity Income Unconstrained and Liontrust Special Situations.