Liontrust Special Situations, TB Evenlode Income and Royal London UK Equity are among a number of funds that have best weathered the post-referendum Brexit uncertainty, according to data from FE Trustnet.
After more than three years since a majority of the UK electorate voted to leave the EU, a post-Brexit relationship remains unresolved despite the fast approach of the 31 October deadline.
Having claimed the resignation of two prime ministers, Boris Johnson seems to lean towards a hard Brexit outcome.
However, the uncertainty around negotiations has weighed heavy on the UK economy and market as companies pause investment pending a final Brexit outcome.
Since the referendum, the UK market has lagged its international peers, delivering a total return of 31.83 per cent against a rise of 41.54 per cent – in local currency terms – for the MSCI World index to 20 September 2019.
Performance of indices since EU referendum
Source: FE Analytics
With the domestic market subject to various changes in negotiating stance, parliamentary votes and court rulings, it has been a challenging period for UK equity fund investors.
As such, FE Trustnet decided to find out which funds have managed to outperform the FTSE All Share index – a commonly used benchmark and representing 98 per cent of the listed UK equity market – while protecting investors from the uncertain market environment.
For the purposes of this survey, we looked at the top-quartile performers in a range of metrics aimed at measuring how a fund has managed during more challenging conditions.
As such, we looked at funds that had registered the fewest negative periods during the past 38 months since the referendum, which had the lowest monthly downside capture (how a fund performed in a down market relative to the FTSE All Share), the lowest maximum drawdown (the possible return if bought and sold at the worst possible time), and the lowest monthly volatility.
Having looked across both the IA UK All Companies and IA UK Equity Income sectors, there were five funds in total (all from the IA UK All Companies sector) that outperformed the FTSE All Share index and were top-quartile in our chosen metrics.
TB Evenlode Income
The fund with the best return over the period was TB Evenlode Income which made a 55.18 per cent total return during the period under review.
Overseen by FE Alpha Manager Hugh Yarrow and colleague Ben Peters, it is the only fund with an equity income focus.
The five FE Crown-rated fund has generated the strongest return with the second-lowest volatility and the best maximum drawdown figure.
Yarrow and Peters target long-term total returns with an emphasis on income and has an historic yield of 3 per cent.
The concentrated fund – which typically holds less than 40 investments – places an emphasis on real dividend growth, companies with high returns on capital and strong free cash flow.
The £3.5bn fund also has a low turnover and long-term holding periods, while investing up and down the market capitalisation scale.
Performance of fund vs sector & benchmark since the EU referendum
Source: FE Analytics
It also had the lowest downside capture ratio capturing just 41.83 per cent of the FTSE All Share’s negative performance during down market conditions. TB Evenlode Income has an ongoing charges figure (OCF) of 0.9 per cent.
Liontrust Special Situations
The next best performer is the £5.1bn Liontrust Special Situations fund overseen by FE Alpha Managers Anthony Cross and Julian Fosh.
Another five FE Crown -rated strategy, the fund is managed using the firm’s proprietary ‘economic advantage’ process which seeks out companies with durable competitive advantages allowing them to defy industry competition and sustain a higher-than-average level of profitability for longer.
Liontrust Special Situations has made a total return of 45.96 per cent over the period, recording the second-best maximum monthly drawdown figure of the five funds and the joint fewest negative months.
The fund has 48 per cent of the portfolio invested in FTSE 100 stocks and includes a number of more internationally focused names in its top-10 such as Unilever, BP, Royal Dutch Shell. It has an OCF of 0.87 per cent.
VT Castlebay UK Equity
Next up is the VT Castlebay UK Equity, a £38.5m fund (also five FE Crown-rated), manged by David Ridland. Taking a ‘quality value’ approach, the managed invests in high returning companies that are attractively valued against the own long-term average valuations.
As such, Ridland focuses on companies that have demonstrated their ability to generate high returns in the past, enabling them to carry on making high returns in the future.
While 56 per cent is invested in large-cap names, the fund also has 24 per cent in mid-cap companies and a further 9 per cent in small caps.
It maintains a concentrated portfolio of 20-30 stocks that typically have strong cash flows, high returns on invested capital, high operating margins, low or no debt, an operational margin of safety and a valuation margin of safety. It also eschews some areas of the UK market such as banks and big oil.
Since the referendum, it has made a total return of 41.91 per cent, with the lowest volatility (8.62 per cent). VT Castlebay UK Equity has an OCF of 1 per cent.
Source: FE Analytics
UK Primary Opportunities
The £27.6m MFM UK Primary Opportunities fund managed by Bob Brown, Oliver Brown and Alan Beaney also features on our list.
The company targets capital growth and investment income investing largely in the mega-cap space (above £20bn), which represents 50.9 per cent of the portfolio. A further 10.5 per cent is currently invested in the large-cap space (between£5bn and £20bn).
Since 23 June 2016, the fund has delivered 36.35 per cent total return with the joint-lowest number of negative periods. The fund has an OCF of 0.87 per cent.
Royal London UK Equity
The final fund on our list is Royal London UK Equity, which has made a total return of 32.56 per cent. Managed by Joe Walters since January 2018, the four FE Crown-rated fund targets capital growth over the medium term. The fund has an OCF of 0.67 per cent.
Walters performs top-down and bottom-up analysis to forecast companies’ short and long-term profit growth to find the most attractive opportunities.
There are three elements to his proves including understanding the macroeconomic backdrop, spotting changes in earnings momentum and identifying changes in the company strategy or market position.
Typically the fund’s portfolio will consist of companies with strong market franchises that Walters believe will enjoy above-average profit growth over the medium term.