Stock markets around the world performed well in the first months of the year, with the FTSE surging past 6,800 in May. However, it has since retreated and plunged close to the 6,200 mark at the time of writing.
The majority of industry experts say the current sell-off is merely a natural correction, but the more cynical ones will point to the deep-rooted fear of QE – what some term "the greatest financial experiment in history" – coming to an end.
Just last night the Fed’s Ben Bernanke confirmed QE will be tapered if the US continues to grow at its current pace and is likely to be stopped altogether next year. The result? A 2 per cent fall in the FTSE 100.
The mixed messages from industry commentators have left many investors in a state of limbo, with some saying this is an ideal buying opportunity and others fearing that markets could be on the verge of falling off a cliff.
With this in mind, FE Trustnet highlights some of the managers who do not try to second-guess the market but who have consistently outperformed their peers by focusing purely on a bottom-up stockpicking strategy.
After all, who saw Bernanke’s speech coming last night? We certainly didn’t…
Alexander Darwall
Charles Stanley Direct’s Rob Morgan highlights Alexander Darwall (pictured) as one of the best managers to have made a career out of ignoring macro noise.
"Most fund managers would say they are genuine bottom-up stockpickers, but there are only a couple that immediately spring to mind," he said.
"One of these is Alexander Darwall at Jupiter. You only need to listen to his conference calls as he basically spends about two seconds talking about macro issues, then says 'that’s it, I’m really not bothered about it'."
"Instead he gets to know companies inside-out, making sure they have the most robust business model possible. He thinks worrying about the market is a complete waste of time and goes for the best-quality companies at the best prices," he added.
FE Alpha Manager Alexander Darwall runs the five crown-rated Jupiter European fund, which is £2.2bn in size.
His bottom-up style has worked wonders, with the fund achieving top-quartile returns in the IMA Europe ex UK sector over three, five and 10 years.
Over the past decade, it is the second-best performing portfolio in the sector, with returns of 266.2 per cent, compared with 139.72 per cent from the average fund and 148.14 per cent from its FTSE World Europe ex UK benchmark.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The fund has also been less volatile than both the sector and the index over this time.
Jupiter European has an ongoing charges figure (OCF) of 1.79 per cent and requires a minimum investment of £500.
Paul Marriage
Morgan also likes FE Alpha Manager Paul Marriage’s (pictured) stock-analysis methods.
"In the UK sphere, I would go for Cazenove UK Smaller Companies," he said. "Paul Marriage, who runs the fund, isn’t interested in macro factors. I think that is a good approach, as in small caps there is so much alpha out there to go and get, I don’t think there is the need to focus on the macro."
Marriage’s five crown-rated £502.9m Cazenove UK Smaller Companies fund is among the four best-performing funds in the IMA UK Smaller Companies sector over one, three, five and 10 years.
It tops the sector over three years with returns of 121.58 per cent, doubling the amount made by its FTSE Small Cap ex IT index benchmark.
The fund has been less volatile than the average fund in the sector over this time.
Cazenove UK Smaller Companies requires a minimum investment of £1,000 and has an OCF of 1.61 per cent.
Anthony Cross & Julian Fosh
The FE Alpha Manager duo of Anthony Cross and Julian Fosh are renowned for their "economic advantage" model within their three flagship Liontrust portfolios. The largest of these is the £931m Liontrust Special Situations fund, which has five FE crowns.
The fund has returned 172.61 per cent since launch in November 2005, compared with returns of 61.41 per cent and 56.74 per cent from the FTSE All Share index and IMA UK All Companies sector respectively.
Performance of fund vs sector and index since Nov 2005
Source: FE Analytics
The fund has also been a top-quartile performer in each of the last five calendar years.
The two managers say this outperformance stems from avoiding a top-down view, as trying to second-guess markets would make them "merely pawns in the macroeconomic environment".
Their "economic advantage model" involves finding companies that have intangible strengths that competitors will struggle to reproduce.
The main three intangible assets that the duo look out for are a company’s intellectual property, distribution channels and repeat business, although they also consider a company’s culture and its brand power.
Liontrust Special Situations has an OCF of 1.88 per cent and requires a minimum investment of £1,000.
Nick Train
Ben Willis, head of research at Whitechurch, says that while FE Alpha Manager Nick Train (pictured) does take the macro into consideration, he says his outperformance stems from focusing on a business’s essentials.
"In some respects, he does pay attention to some of the macro, but saying that, he has been quite dismissive of the rally as he feels it has all been built on funny money," Willis said.
"However, he builds his portfolios by being long-term in his approach and by focusing on the basics like a company’s fundamentals and valuations," Willis added.
Train currently runs the open-ended CF Lindsell Train UK Equity fund. He also manages the Finsbury Growth & Income Trust and the Lindsell Train IT, both of which are closed-ended.
He has run the £363m Finsbury Growth & Income Trust since December 2000. The trust has been the best-performing portfolio in the IT UK Growth & Income sector over five and 10 years. Over three years it is the second-best performer and is ranked third over 12 months.
Finsbury Growth & Income has also comfortably beaten the FTSE All Share over these periods.
Train runs a high-conviction portfolio of just 26 stocks. The trust is trading on a 0.28 per cent premium to its NAV and is 6 per cent geared. The Finsbury Growth & Income Trust has ongoing charges of 0.94 per cent.
Alex Savvides
Although FE Alpha Manager Alex Savvides does not have the longest of track records, his pure bottom-up approach has helped him to outperform recently.
His £50m JOHCM UK Dynamic fund is a top-quartile performer in the IMA UK All Companies sector over one, three and five years.
The fund was launched in June 2008 and since then it has made 80.2 per cent, which is more than double the returns of the sector average and its FTSE All Share benchmark.
Performance of fund vs sector and index since June 2008
Source: FE Analytics
Savvides told FE Trustnet that his performance is due to a consistent and replicable process.
"The philosophy has four key tenets. The first is to profit from extremes in valuations and sentiment, so finding companies at the low points of their life cycle," he said.
"We realise that companies are dynamic and not static, so are constantly evolving over time. This means we need to evaluate evolving risks to companies. The next is to employ strict investment disciplines, to make sure we cherry-pick the best companies that can give us the highest returns on capital."
"Finally, we build a margin of safety by having a value focus," he added.
JOHCM UK Dynamic requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.5 per cent. It also charges a 15 per cent performance fee on everything made in excess of the FTSE All Share's returns.
