Despite a total expense ratio (TER) of 1.91 per cent – just a whisper away from putting it in the top decile for price in its IMA UK All Companies sector – the fund has grown to £552.15m from £198.7m at the start of 2012.
Since the beginning of August alone it has grown by £98.2m – an increase of 21.64 per cent – and it is the third most viewed fund on the FE Trustnet website in the past month, behind FE Alpha Manager Neil Woodford’s Invesco Perpetual High Income and Jason Pidcock’s Newton Asian Income funds.
The fund’s success comes despite its high charges and its position in an unfavoured sector; IMA UK All Companies has been the least popular sector among retail investors in four out of the past seven months, according to IMA figures.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The inflows follow a sustained period of consistent outperformance from the fund.
Since it was launched in November 2005, it has produced returns of 142.03 per cent – the second highest of the 217 funds in the sector, marginally behind Standard Life UK Equity Unconstrained.
FE Trustnet data is inclusive of all charges, meaning that it measures the real return of each fund. The findings suggest investors would be wise not to automatically ignore high-cost funds in favour of cheaper rivals.
Index trackers are often touted as cheap alternatives to funds for those who want access to equity markets.
The Vanguard FTSE UK All Share Tracker – which seeks to replicate the fund’s benchmark – has made 22.65 per cent since it was launched in December 2009, while Liontrust Special Situations is up 79.41 per cent over the same period.
Performance of fund vs tracker since December 2009
Source: FE Analytics
The current charges on the tracker are just 0.15 per cent, but investors who had bought it at launch instead of the Liontrust fund would be more than three times worse off today.
Data from FE Analytics shows that three out of the five funds in this sector that have attracted more than £100m in the past six months are index trackers, suggesting that many investors seem to be influenced by arguments in favour of low-cost products.
The other of the five is Cazenove UK Opportunities.
Liontrust Special Situations also has an exceptional record on many of the performance ratios used to compare funds.
Julian Fosh and Anthony Cross have added 10.28 per cent of Alpha to the performance of the FTSE All Share over the past six years, which is more than the manager of any other fund in the sector has added to their benchmark.
This means that the fund could be expected to increase in value by 10.28 per cent when the index remained at the same value.
The fund also has the highest Sharpe ratio of all the 236 funds with a long enough track record over the period.
This ratio determines risk-adjusted performance. It measures returns relative to a notional risk-free investment – in this case, cash. The difference is then divided by the fund's volatility.
Liontrust Special Situations is among the least volatile in the entire IMA UK All Companies sector over three and five years, while its max drawdown since launch – the most investors could have lost if they had bought and sold at the worst possible moments – is in the lowest 10 per cent in its sector.
The managers invest across the market cap spectrum and currently have 41.28 per cent in the FTSE 100, 26.73 per cent in the FTSE 250 index of mid cap companies and a further 22.78 per cent in smaller indices.
Top-10 positions include blue chip pharma giant GlaxoSmithKline and FTSE 250 media firm Aegis Group.
Recent FE Trustnet research has underlined the ability of mid cap-focused funds to outperform those that stick to large caps, which may in part explain this portfolio’s success.
Head of communications at Liontrust Simon Hildrey confirmed he has had discussions about the size and speed of the inflows with FE Alpha Managers Cross and Fosh.
He says neither has voiced concerns over the current fund size, and both believe the rate of inflows is manageable and does not currently constitute a problem.
The fund is now Liontrust’s largest offering, and almost twice the size of former star Liontrust Income, which has experienced significant outflows in recent months.