Bestsellers lists tend to be dominated by established portfolios that were launched more than a decade ago. The likes of Invesco Perpetual High Income, Jupiter Merlin Income and M&G Global Basics immediately spring to mind.
However, many of these vehicles delivered the biggest bulk of their outperformance when they were in the early stages of their development, at a time when they were much smaller and therefore more flexible.
By ignoring recently launched funds, investors run the risk of missing out on stellar performance.
In 2012, only two of the top-10 best performing funds in the popular UK Equity Income sector had a 10-year track record, for example.
With this in mind, FE Trustnet takes a look at three top-rated funds that have recently achieved a three-year track record.
Henderson European Special Situations
While Henderson European Special Situations was only launched in October 2009, manager Richard Pease has been running European portfolios for more than a decade.
His experience has been a big asset to the fund – according to FE data, he has led it to returns of 49.48 per cent since launch, in spite of the challenging backdrop for European equities.
This figure is more than twice that delivered by the IMA Europe ex UK sector, and also significantly higher than the amount made by the FTSE World Europe index – the fund’s benchmark.
Performance of fund vs sector and index since launch
Source: FE Analytics
In a sector comprising more than 106 funds, only five have returned more over the period.
Henderson European Special Sits is also at the very top of its sector over one and three years.
As well as outperforming its peer group, Pease’s fund is also less volatile, and held up better during the 2011 summer sell-off.
Special situations funds target out-of-favour companies that the manager believes are due for a reversal in fortune.
Pease looks for a catalyst for change – new management or a competitor going out of business, for example – and buys the company on the cheap.
When this works, the rewards can be substantial, illustrated by the fund’s strong run in the last three years or so.
Pease, an FE Alpha Manager, is currently cautious in his outlook for Europe and as a result has upped his exposure to companies that should prosper even in tough times, thanks to their exposure to faster-growing economic areas and robust pricing power.
Among his largest holdings are Finish engineering company Kone and Dutch animal-feed producer Nutreco.
Hargreaves Lansdown’s Rob Morgan says he is a big fan of the fund and likes the added flexibility Pease has in running it.
"He’s only been running it for three years or so, but [Pease’s] track record goes back many years in Europe," he said.
"We saw this fund as his chance to fully express his stockpicking ability, as he has the flexibility to move into small and mid caps. It’s for this reason that we placed his larger European Growth fund with this one."
The £584m Henderson Special Sits fund, which has five FE Crowns, requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.75 per cent.
Evenlode Income
Given the wide range of multi-billion pound funds in the IMA UK Equity Income sector, it is unsurprising that this £19.3m portfolio has gone unnoticed.
However, for investors that are worried about the sheer size of many of the funds in this area and are looking for a future star, Evenlode Income definitely stakes a claim.
The five crown-rated fund has delivered 53.05 per cent since its launch in October 2009 – a top-quartile figure for its sector. Over the same period, the average IMA UK Equity Income fund and the FTSE All Share are up 41.02 and 43.36 per cent respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
Manager Hugh Yarrow runs a concentrated portfolio of around 30 stocks.
His top-10 is predominantly made up of UK blue chips – Unilever and GlaxoSmithKline are his two biggest holdings – but his high degree of flexibility means he is able to invest throughout the market cap spectrum.
Yarrow has big positions in Atkins, Halfords and Halma, for example.
In a recent note to investors, the manager said that in spite of the threat of deflation in the short-term, he expects inflation to take hold in the long-run.
As a result, Yarrow targets companies whose decisive assets are intangibles, and brands – rather than physical assets – which he believes should be able to cope relatively well in both those macro scenarios.
"Intangible asset businesses give a degree of insulation from both inflation and deflation," he said.
"They tend to be price-makers not price-takers, which helps defend against deflationary pressures and subdued demand."
"However, they also have very low capital expenditure requirements, so rising revenue translates to rising free cash-flow, even during periods of high inflation."
"Most other financial assets, such as bonds, commodities and property, and several of the equity sectors I avoid, are a 'bet' on one or other of these outcomes."
Evenlode Income, which is currently yielding 3.42 per cent, requires a minimum investment of £1,000 and has a TER of 1.73 per cent.
Scot Wid HIFML Far Eastern Focus
FE Alpha Manager Hugh Young (pictured) is one of the most respected emerging market investors in the business.
While he is usually associated with Aberdeen, he also runs this £23.7m portfolio, which has shot the lights out since being launched in January 2009. According to FE data, the Scottish Widows fund is up 130.67 per cent over the period, beating its IMA Asia Pacific ex Japan sector average by more than 20 percentage points.
It has also been significantly less volatile and has outperformed over all three full calendar years.
Scot Wid HIFML Far Eastern Focus is much smaller than all of Young’s Aberdeen portfolios, some of which are closed to new investors.
This means the manager has greater flexibility to move in and out of sectors and individual companies.
Young’s biggest sector position is currently financials, which makes up 46.2 per cent of the portfolio. The manager has only a 37.6 per cent exposure to the sector in his Aberdeen Asia Pacific fund.
He also has a far bigger stake in India in the Scottish Widows fund.
Morgan says the fund is an interesting choice and likes the fact Young has the flexibility to make big sector bets.
"The one question-mark is whether the manager is giving it as much attention as his other funds; however, given the calibre of Young, there’s no reason why he wouldn’t be fully committed – especially given how long-term his process is," Morgan added.
Scot Wid HIFML Far Eastern Focus requires a minimum investment of £5,000 and has a TER of 1.75 per cent.