Just six UK equity funds have delivered positive returns in each of the seven calendar months so far this year, as the domestic market continues to struggle with Brexit uncertainty, according to research by FE Trustnet.
It has been a challenging year for investors in domestic stocks as ongoing Brexit negotiations have given little insight into how the UK will interact with its biggest trading partner after it leaves the EU.
The installation of Boris Johnson as prime minister following the resignation of Theresa May has signalled that a so-called ‘hard Brexit’ could be on the cards, dampening investor sentiment further.
Indeed, there has been just over £1bn in outflows from UK equity funds during the first half of the year, according to data from the Investment Association.
Despite the uncertainty, the domestic market – as represented by the FTSE All Share – has performed strongly (up by 15.23 per cent) albeit lagging its international peers.
Monthly returns of the FTSE All Share index in 2019
Source: FE Analytics
As the above chart shows, the FTSE All Share has delivered positive returns in each month with the exception of May, when it made a loss of 3 per cent.
As such, May proved an exceptionally difficult month for UK equity managers to outperform the UK benchmark.
With May stripped out, however, 76.7 per cent of the IA UK All Companies sector have delivered positive monthly total returns in 2019.
Nonetheless, FE Trustnet decided to find out which funds from the three main UK equity sectors – IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies – and which strategies had managed to deliver positive total returns month-in, month-out in 2019 so far.
Firstly, it should be noted that no IA UK Equity Income funds managed to beat the FTSE All Share index – a commonly used benchmark for the sector.
There were six funds in total that have delivered total returns in each month of the year so far, four from the IA UK All Companies sector and two IA UK Smaller Companies funds.
The four funds from the IA UK All Companies were Aviva Investors UK Equity MoM 1, HL Select UK Growth, LF Lindsell Train UK Equity and TB Evenlode Income.
Both Aviva Investors UK Equity MoM 1 and LF Lindsell Train UK Equity Income are managed by FE Alpha Manager Nick Train, and both have five FE Crowns.
The veteran investor is known for his long-term, low turnover approach and focus on ‘exceptional’ companies – durable, cash-generative that aim to achieve higher-than-average returns on capital.
During the first seven months of the year, the £408.2m Aviva Investors UK Equity MoM 1 has delivered a 25.52 per cent total return. Meanwhile, the much larger £7.4bn LF Lindsell Train UK Equity funds has returned 25.95 per cent in 2019 to last month-end.
Source: FE Analytics
The £3.4bn TB Evenlode Income fund is another well-known name among financial advisers and overseen by lead manager Hugh Yarrow – an FE Alpha Manager – and deputy manager Ben Peters.
While not sitting in the IA UK Equity Income sector, the five FE Crown-rated fund has an emphasis on generating income for investors and has a yield of 2.9 per cent.
Yarrow and Peters aim to identify businesses with a large market share or competitive edges allowing them to consistently deliver high levels of recurring cashflow that can be returned to investors.
In the year to 31 July, TB Evenlode Income has made a total return of 23.46 per cent.
Next up is the HL Select UK Growth fund, a £305.4m concentrated portfolio of UK equities overseen by Charlie Huggins and Steve Clayton.
The fund targets long-term growth through investment in “financially strong, quality businesses”, such as top holdings software company GB Group, oil giant Royal Dutch Shell, media company RELX, and caterer Compass Group. Since the start of the year it has made a total return of 18.41 per cent.
The ongoing uncertainty has hit small cap-focused funds hardest given their perceived exposure to the domestic economy.
Nevertheless, two IA UK Smaller Companies funds are among those that have generated total returns in each month of the year so far.
The first on our list is the £460m, four FE Crown-rated BlackRock UK Smaller Companies overseen by Roland Arnold.
The fund, which is benchmarked against the Numis Smaller Companies plus AIM ex-Investment Trusts index, targets long-term capital growth based on five key stock selection criteria: strong management, strong market position, strong balance sheet, cash generative and a track record of growth. This year the fund has made a total return of 15.34 per cent.
Performance of funds vs index YTD
Source: FE Analytics
The last fund on our list is the four FE Crown-rated Castlefield B.E.S.T. Sustainable UK Smaller Companies fund. The £8.8m fund is overseen by lead manager David Elton and deputy Alistair Currie and aims to outperform the peer group over the longer term.
The managers invest in companies that meet their ‘B.E.S.T’ criteria: Business & financial, Environmental & ecological, Social and Transparency & governance. In 2019 it has made a return of 12.555 per cent.