FE Trustnet has identified four funds that have proved their ability to deliver the goods during bull markets, using two key ratios.
Examined over four bullish phases for the FTSE All Share in the last 10 years, each of these funds delivered a positive Alpha in excess of 5 during that period – demonstrating the managers' ability to add returns above and beyond the momentum of the assets they hold when the tide is rising.
These funds also all display positive Beta, which means that while they may be more volatile than some investors would like, they are sensitive to movements in their benchmark and will outperform their peers that have lower Beta to the same benchmark.
FE Research analyst Amandine Thierree (pictured) explained the results.
"Basically, funds that are focused on smaller and mid-sized companies tend to outperform during recoveries, and it’s not surprising that these have come out on top." "The type of companies they invest in have flexible structures and can react quickly to economic improvements."
"They also tend to invest in stocks which investors are quick to dump in risk-off periods, so there is more ground in terms of share price for them to regain when risk is back on again."
She continued: "Likewise, commodity funds are in a good position when demand for the resources that make the world turn kicks off, which is why M&G Global Basics makes an appearance."
M&G Global Basics
M&G Global Basics invests in companies concerned with core industrial sectors such as mining, manufacturing and logistics, many of which have benefited in recent years from surging demand for their services from the rampant Far East.
The giant £5.2bn fund has a three crown-rating from FE and a Platinum rating from S&P.
Fund manager Graham French has been in charge since 1995.
The FE Alpha Manager has delivered 122 per cent over the course of his career, destroying his peer group composite which has returned just 22 per cent over the same period.
M&G Global Basics yields 0.28 per cent and has returned 16.66 per cent over five years according to data from FE Analytics, while the IMA Global sector has returned 6.21 per cent over the same period.
The fund, which has a TER of 1.67 per cent, has a minimum investment of £500.
Franklin UK Mid Cap
Franklin UK Mid Cap invests in a portfolio of medium-sized UK companies, with a heavy weighting towards primary and secondary industries.
Its largest weighting, according to data from FE Analytics, is in industrials which make up more than a third of total assets, while oil & gas companies make up almost 10 per cent.
The fund, managed by FE Alpha Manager Paul Spencer, has a four crown-rating from FE. Spencer took control in 2006 and has returned more than 80 per cent over the course of his career, beating his peer-group composite by more than 57 percentage points.
Franklin UK Mid Cap, which yields 0.5 per cent, has returned 54.33 per cent over the last five years, compared with 7.84 per cent from the IMA UK All Companies sector.
Performance of fund vs sector over 5-yrs
Source: FE Analytics
The fund has a TER of 1.58 per cent and a minimum investment of £1,000.
BlackRock European Dynamic
BlackRock European Dynamic has a five crown-rating from FE and a Platinum rating from S&P.
The £1bn fund invests in companies based in Europe. It uses BlackRock’s strong network of employees across the continent to support its bottom-up decision-making process, which also has a strong macro overlay.
The fund, which yields 0.54 per cent, places strong emphasis on managing risk – which may explain why it has done well compared with many of its peers in the stricken sector.
It has returned more than 40 per cent over the last five years, outperforming the IMA Europe ex UK sector, which actually lost investors money, by a margin of more than 45 percentage points.
Fund manager Alister Hibbert also runs a European hedge fund, which may help to inform his decisions on the long-only fund. He has been a household name among investors for many years.
An FE Alpha Manager, he has returned 130.6 per cent over the course of his career, leaving his peer group composite benchmark in the dust at just 44.8 per cent over the same period.
Thierree says investors should be wary of viewing this fund in the same way as the others, however.
"Many European funds, Blackrock included, invest in companies deriving the majority of their earnings from overseas."
"This makes me think that good performance in recovery periods has more to do with the improving sentiment towards the geographic area than with companies’ fundamentals."
BlackRock European Dynamic has a minimum investment of £500 and a TER of 1.67 per cent.
Old Mutual UK Select Mid Cap
Old Mutual UK Select Mid Cap has an S&P Capital IQ Gold rating, but only has two crowns from FE.
The fund invests in medium-sized companies based in the UK, aiming to outperform the FTSE 250 index by at least 3 per cent on a rolling 12-month basis.
It holds a well-diversified portfolio of between 70 and 80 stocks, more when the manager is cautious, and individual weightings are conservatively limited to a maximum of 3 per cent of total assets.
Fund manager Richard Watts took control of the fund in 2009 and it has performed well under his stewardship – returning 99.89 per cent to investors while its IMA UK All Companies sector has delivered just 61.75 per cent.
Performance of fund vs sector since Jan-2009
Source: FE Analytics
The fund yields 0.5 per cent, has a minimum investment of £1,000 and a TER of 1.67 per cent.