Everyone who has put their money into a market has at some point seen it go down in value, but a key rule of investing is knowing to ride out short-term movements in the pursuit of greater long-term rewards.
Different types of UK equities go up and down depending on what stage of the business cycle the market is currently experiencing, many economists and professional investors argue, but it is still frustrating to see some of your investments go down when the wider market is trending upwards.
Since March 2009 – the nadir of the financial crisis’ profound effect on UK equities – the FTSE All Share has generally moved upwards as investor sentiment rebounded.
According to FE Analytics, the best place to have stashed your cash within the FTSE All Share’s main constituent indices would have been the mid cap part of the market, followed by small-caps and lastly the large cap portion.
In fact, the FTSE 250 made more than double the gain of the FTSE 100 over this period with a rise of 249.28 per cent against 120.7 per cent. The FTSE Small Cap index is up 226.63 per cent.
Performance of indices since 2009
Source: FE Analytics
The middle months of 2011 is a bit of an exception to the broadly upwards movement of the market as UK equities lost just under 20 per cent when fears of the European sovereign debt crisis heightened.
Performance of indices in 2011
Source: FE Analytics
Looking within the IA UK All Companies sector since March 2009 and using the maximum drawdown metric, we can see how much investors would have lost in a fund if they had put their cash to work at the least opportune time, i.e. buying when the fund was at its highest and then selling out at the lowest point.
An astonishing 90 per cent of the 240 funds in the sector fell harder in their worst moments than the FTSE All Share over this six-year period.
Three funds from the same group have given investors the roughest ride over this period. The £39m Standard Life Investments UK Equity Recovery fund and the £145m Standard Life Investments UK Opportunities funds have maximum drawdowns of 35.5 per cent and 34.63 per cent respectively.
David Cumming has managed the Standard Life Investments UK Equity Recovery fund since launch in March 2009 and while it has the highest maximum drawdown, it has also rewarded investors with some of the sector’s highest returns over three years and since launch.
Performance of funds, sector and index since March 2009
Source: FE Analytics
Clearly having a value bias, with major positons in the likes of beleaguered names such as Lloyds, RBS, Glencore and First Quantum Minerals, means the fund is prone to volatile times and is bottom quartile over the past 12 months.
Caspar Trenchard’s £145m Standard Life Investments UK Opportunities fund has also outperformed considerably despite a high maximum drawdown and is top decile over one and three years and second quartile since March 2009.
It is a reasonably diversified multi-cap fund with less than a third of total assets in the 10 largest stocks. The fund did take bit of a hit in the broader mid-cap sell-off last year but clearly has stayed ahead despite this fall. Top holdings include Fever Tree, Marshalls and Premier Foods.
Ed Leggett’s £1.2bn Standard Life Investments UK Equity Unconstrained fund has given investors the third largest maximum drawdown, at 31.32 per cent.
It is one of the best-performing funds over the last several years and the best in the sector since March 2009, rewarding investors with a return just shy of 450 per cent.
Performance of fund, sector and index since March 2009
Source: FE Analytics
As the name suggests, the portfolio is a go-anywhere strategy that doesn’t have a benchmark and Leggett chooses a multi-cap approach with large, mid and small caps sitting alongside each other in his top 10. The manager aims to buy up undervalued stocks when the market is having a tough time and wait for their medium-term appreciation.
The £450m Henderson UK Alpha and £128m R&M UK Equity Long Term Recovery funds have the next highest maximum drawdowns – although the former’s co-managers have only run the portfolio since 2013.
Hugh Sergeant has been on R&M UK Equity Long Term Recovery over the up market period under discussion, having taken the reigns in July 2008.
The fund’s top 10 is mostly large and mega caps but he has just 37 per cent in the FTSE 100 and more than 40 per cent split across the FTSE 250, FTSE Small Cap and FTSE AIM indices as well as 17 per cent in international stocks.
Sergeant deep value approach has also done well since March 2009, with a return of 266.74 per cent – the 14th best performance in the sector. Over three years it is also strong with a top decile return but has also suffered in the past year and fallen to the bottom quartile.
Margetts’ Toby Ricketts recently bought the fund believing now was a good time to buy mid and small caps.