The likes of Schroder Recovery, GAM UK Diversified and Majedie UK Focus are among the top-rated funds that have underperformed the most since the FTSE 100 began its plunge after hitting an all-time high back in April 2015, according to research by FE Trustnet.
The first official bear market since the financial crisis has occurred with the FTSE 100 index falling in price terms by more than 20 per cent. While it has made some bounce back the falls have left many investors on the side-lines unsure whether to buy into the more lowly valued market or stay away for fear of further falls.
Performance of index since 27 April 2015
Source: FE Analytics
In this article we take a look at the funds sitting in the IA UK All Companies and IA UK Equity Income sectors that have fallen harder than the FTSE putting them in the bottom 10 per cent of these combined sectors but are also run by an FE Alpha Manager.
The worst hit over this period is David Cumming’s Standard Life Investments UK Equity Recovery fund which has fallen 27.02 per cent but the £686m Schroder Recovery fund is the first on our list, having lost 23.50 per cent.
FE Alpha Manager duo Kevin Murphy and Nick Kirrage have run the fund since 2006 but suffered their worst year ever in 2015 with fund at the bottom of the IA UK All Companies sector while their £1.4bn Schroder Income fund was third worst.
Both funds have a strong long term track record versus peers doing particularly well in the strongly up years of 2009, 2012 and 2013.
Source: FE Analytics
Chelsea Financial’s Darius McDermott says he is looking to add exposure to the portfolio believing the besieged performance is down to ‘value’ as a style being heavily out of favour but due a rebound.
Over the past few years investors have flocked to defensive ‘quality’ stocks, McDermott believes, due to a surging demand for companies’ dividends, a deterioration in sentiment to fixed income and concern about the global recovery.
Value has underperformed growth and quality over two years in part due to a bad time for commodities-related stocks and a lacklustre performance for banks which collectively make up a large portion of the index.
Schroder Recovery and Schroder Income both have clean ongoing charges figures [OCFs] of 0.91 per cent.
Another manager with a strong value tilt who has suffered in the FTSE’s bear market is FE Alpha Manager Martin Walker who runs the £200m Invesco Perpetual Childrens, the £1.1bn Invesco Perpetual UK Growth & £228m Invesco Perpetual UK Focus funds which all fall into the bottom decile of the combined two sectors.
Invesco Perpetual UK Growth has the cheapest OCF of 0.91 per cent. Invesco Perpetual UK Focus’s OCF is 0.92 per cent. Invesco Perpetual Childrens is 0.97 per cent.
Walker told FE Trustnet that he expects market conditions suggest a rotation away from quality and growth and into value.
“The perception that we are in a deflationary period now seems to be consensus as well and so whether it is market sentiment or the macro there is the potential for a rotation because we are at quite an extreme point,” he said.
Coram Asset Management’s Martin Gray agrees. He said: “Up until recently value as a theme hasn’t worked as it’s been offered at growth prices, but now it’s coming into range and is offering up much more attractive entry points.”
GAM UK Diversified was also hurt by exposure to value. Despite having nearly a fifth of its portfolio as cash, the fund is also down more than index over the period in question.
FE Alpha Manager Andrew Green, who heads the £152m GAM UK Diversified fund has, 19.07 per cent in cash after the manager rapidly built up his weighting in the latter half of 2015.
It was the manager’s move into mining last year that really hurt performance, though, especially Anglo American and Acacia Mining which both saw nasty falls in the past year.
Performance of stocks and index over 1yr
Source: FE Analytics
Longer term, Green like most of those mentioned in this article has a strong track record. He is one of just 30 FE Alpha Manager ‘hall of famers’, which means he has been in the top 10 per cent of managers for risk-adjusted alpha generation, consistence outperformance versus a benchmark and outperformance in both up and down markets in every year since the ratings were launched.
Green has managed GAM UK Diversified since 1990 over which time he has clocked up considerable returns for investors. Over the past 20 years he has more than doubled the FTSE All Share’s 233 per cent gain.
Performance of fund and index over 20yrs
Source: FE Analytics
The fund has a clean OCF of 1.11 per cent.
FE Alpha Manager Chris Reid who co-manages the Majedie UK Focus fund alongside Chris Field, James de Uphaugh, and Matthew Smith is the last on the list.
It has managed to perform well in most market conditions but 2015 was a tough year for the fund, which now counts HSBC, BP, RBS, Barclays, Royal Dutch Shell and Tesco as top 10 holdings, and 2016 has been no different.
FE data shows Majedie UK Focus has beaten both the sector and FTSE All Share in eight out of the last 10 full calendar years and but is underperforming performing once again in 2016.
Its last bad year – relatively speaking was back in 2010 when it made 10.96 per cent that year.
The fund has a multi-cap approach given it is a ‘best ideas’ version of the group’s flagship UK Equity offering, though it has been the managers’ big positions in bombed out mega-caps which has hurt performance.
The fund has a clean OCF of 1.53 per cent.
