The five crown-rated GVQ UK Focus fund was the FE Research team’s favourite fund of 2015, with research manager Charles Younes praising FE Alpha Manager Jamie Seaton’s disciplined strategy and stock picking skills.
According to FE Analytics, over the course of the year, it has provided a total return of 6.21 per cent, outperforming its peer average by 135 basis points and its FTSE All Share benchmark by 523 basis points.
Performance of fund vs sector and benchmark in 2015
Source: FE Analytics
“Its performance has been okay this year, it’s in the first-quartile so it’s ahead of its sector peers and it is well ahead of its benchmark,” Charles Younes (pictured), research manager at FE, said. 
“At FE Research we don’t compare it to the FTSE All Share though because the manager pretty much never invests in banks, mining or oil & gas, so it’s a struggle to directly compare it to an index that has such a large weighting in these areas.”
While the £335m fund’s returns over the past 12 months have been good, it is the consistency of its performance over the medium term which is most impressive.
Since Seaton took charge of the fund in April 2009, it has been a top decile performer in the highly competitive IA UK All Companies sector with gains of 247.86 per cent meaning it has more than doubled the returns of the wider UK equity market.
On top of that, the fund has beaten the sector average in every full calendar year since Seaton has been at the helm.
Performance of fund versus sector and index under Seaton
Source: FE Analytics
Seaton is able to hold up to 35 UK equities within the fund’s portfolio, and these companies are chosen for their strong cash flows and the capability of their management teams as opposed to how much weighting they bear in the index.
As such, the £327m fund boasts a top-decile alpha generation, which measures returns ahead of a benchmark, over three and five years.
Seaton adopts a private equity-based valuation technique, and as such will change his holdings approximately every three years, expecting each stock to provide at least a 15 per cent return for the fund.
It is the manager’s stock selection this year that has made the fund stand out above its peers according to the FE Research Team, and Younes says that he made several stellar judgement calls at the right times throughout 2015.
“The fund’s timing upon exiting GlaxoSmithKline was really good, as well as when Seaton bought Autotrader, which is the first time that the manager has bought into an IPO,” the research manager explained.
The online car-selling business announced a £2bn stock market flotation in February this year, after private equity firm Apax sought to clear its debt pile while the UK market was looking favourable.
Since the launch of its IPO in March, the stock has returned 73.43 per cent, outperforming its FTSE 250 index by 71.16 percentage points.
Performance of stock vs index since IPO
Source: FE Analytics
“Autotrader came to the market this year at a heavily discounted price, and when the stock price was listed it rose quickly,” Younes said.
Other market calls that the FE Research team has been impressed by this year include when the manager sold out of multinational publishing company Informa because it reached the target price that Seaton had set.
“Once again the timing was very good, they made their money and they left,” Younes continued. “The only concern that we have next year for the fund is its size, because they say they will close the fund at £450m and it is already very close to this and it looks like they’re very committed to that target.”
While the £336m fund is in the top quartile for its performance over three, five and 10 years, investors also will notice that it endured a particularly torrid time prior to when Seaton took the helm in 2009.
The FE Research team believes that this reflects the previous investing style, which was far more focused on small-caps.
Performance of fund prior to Seaton
Source: FE Analytics
“The approach was revised when Seaton took over, and since then performance has been very good,” the FE Invest Approved fund report states.
“Most of the fund’s outperformance of the stock market under the new manager has been down to avoiding banks, miners, and oil & gas companies. However, the manager’s skill has added an average of over 3 per cent a year to returns as well.”
Seaton also isn’t afraid to hold underperforming stocks, and Younes points out that Aberdeen is the fund’s largest holding with almost a 10 per cent weighting. This is due to the manager increasing the fund’s weighting after the share price fell due to concerns surrounding its emerging market exposure.
Performance of stock over 1yr
Source: FE Analytics
“Holding a low number of stocks magnifies the influence of each one’s performance. If the economy rebounds on the back of commodities and increased bank lending the fund could lag,” the FE team warns.
GVQ UK Focus has a clean ongoing charges figure of 0.97 per cent and yields 2.41 per cent.
