Today marks the first day of the fourth quarter, and it is FE Alpha Manager Mark Martin’s portfolio that comes out on top for the first three quarters of 2012.
Martin has made a stellar start to portfolio management since taking charge of the mid cap fund back in December 2008, achieving top-decile status since launch, as well as over one and three years, and of course year-to-date.
Neptune UK Mid Cap pipped to the post AXA Framlington Biotech, which has returned 31.07 per cent so far this year, followed by FE Alpha Manager Alex Wright’s Fidelity UK Smaller Companies fund, MFM CFS Balanced Opportunities and Standard Life UK Equity Unconstrained.
Top-performing funds of 2012
| Name | 2012 returns (%) |
| Neptune UK Mid Cap | 36.29 |
| AXA Framlington Biotech | 31.07 |
| Fidelity UK Smaller Companies | 30.34 |
| MFM CFS Balanced Opportunities | 30.1 |
| Stan Life Inv UK Equity Unconstrained | 28.19 |
| Pictet Biotech | 27.71 |
| Cazenove UK Smaller Companies | 27.21 |
| Premier ConBrio Sanford Deland UK Buffettology | 26.87 |
| FF&P - Small Cap UK Equity | 26.57 |
| CF Odey - UK Absolute Return | 26.26 |
Source: FE Analytics
Also on the top-10 list is the peculiarly named Premier ConBrio Sanford Deland UK Buffettology portfolio, which sits in the IMA UK All Companies sector.
Like Martin’s fund, this is a mid cap-focused UK equity portfolio, concentrating on stocks in the FTSE 250. Small and mid cap funds dominate the top-10 and top-20 list. Biotech is another prominent theme among the best performers this year.
Unlike 2011, when downside protection was the name of the game, it has been the funds that have outperformed their respective peer groups during rising markets that have fared best.
Performance of fund vs sector and index since launch
Source: FE Analytics
The Neptune UK Mid Cap portfolio has returned 154.17 per cent since its launch almost four years ago, compared with 110.75 per cent from its FTSE 250 benchmark and 62.85 per cent from the average UK All Companies fund.
While the fund has outperformed both its sector and benchmark in rising markets, it has also protected more effectively against the downside and has a lower annualised volatility.
Martin (pictured) says this is one of the principal reasons why he has been so successful. "A lot of [UK] mid cap funds tend to do very well when the markets go up, but plummet when it goes down because they’re very cyclical," he commented. "We try and make our fund as balanced as possible."
"We see no clear resolution in the eurozone and things are also difficult in China – for the time being, we’re sticking to the same process, which has seen the fund do so well."
Martin says the fund takes a three-silo approach, focusing on recovery, structural growth and company turnarounds.
"At least 20 per cent of the portfolio is always in each of these silos," he explained. "This structure ensures that as the market matures, we continue to do well because we’re not just invested in high-risk, high-Beta cyclicals."
The manager also points to Neptune’s strength in top-down management.
"Everyone tends to view the FTSE 250 as a pure stockpicking index, but I’d disagree," he continued. "Of course stock picking is important, but our sector process has allowed us to avoid certain areas, which has aided performance."
Neptune UK Mid Cap currently has an overweight in healthcare and a significant focus on high tech companies.
He commented: "In the mid cap space, we see healthcare as something of a sweet spot – you’ve got the growth of the smaller companies market, greater innovation, but also the visible cash flow and strong balance sheets."
"A lot of the mega cap healthcare companies are wrapped up in red tape and have little growth potential."
Martin thinks M&A activity will further boost the sector and highlights Alere's takeover of current holding Axis-Shield as a sign of things to come.
Despite its strong record, the fund has just £25.6m assets under management (AUM) – a fraction of the size of Andy Brough’s £1.16bn Schroder UK Mid 250 portfolio, which has significantly underperformed Neptune UK Mid Cap over one and three years.
In the investment trust universe, The Biotech Growth trust tops the 2012 returns table, with 52.58 per cent.
FE Alpha Manager Alexander Darwall’s highly rated Jupiter European Opportunities trust comes in second with 42.54 per cent, in spite of all the troubles surrounding European markets this year.
There were also top-10 appearances for Aberdeen New Thai, the Aberdeen Asian Smaller Companies investment trust, and Acorn Income.