In recent years it has become increasingly difficult for UK equity managers to put on a brave face as investors have abandoned the asset class in significant numbers.
One of the most shunned equity markets since the EU referendum of 2016, managers have seen the FTSE All Share fail to keep pace with its international peers.
The lack of clarity over Brexit has continued to cloud the outlook for UK equities and keep performance subdued for most of the recent past.
Last year was particularly painful for investors in UK equities as doubts over a Brexit deal being struck and the impact of the Federal Reserve’s tightening regime made it more challenging for managers to outperform.
In 2018, the FTSE All Share made a loss of 9.47 per cent last year while almost two-thirds of funds from the IA UK All Companies and IA UK Equity Income sectors underperformed the index.
Performance of index in 2018 and 2019
Source: FE Analytics
However, greater optimism over a potential deal has seen the index rise by 15.33 per cent in 2019 (to 30 November).
Given the widespread underperformance of the market in 2018, Trustnet looked at the funds overseen by an Alpha Manager that made bottom-quartile returns last year but have bounced back with top-quartile numbers over 2019 to 30 November.
Source: FE Analytics
While managers with a greater domestic exposure (via companies lower down the market cap scale) have been the main beneficiaries of greater optimism over a Brexit deal, those with a value focus also feature among the best performers this year.
This is particularly notable given the style’s outperformance in recent months, with the MSCI UK Value style index returning 4.82 per cent in the three months to 30 November, while its growth counterpart has made a loss of 1.39 per cent. Although it should be noted growth has still outperformed year-to-date.
Below Trustnet takes a closer look at some of the funds that have performed strongly.
Of last year’s Alpha Manager-headed but bottom-quartile strategies, LF Miton UK Value Opportunities has made the strongest return so far this year.
After a loss of 17.42 per cent last year, the £412.4m fund overseen by Andrew Jackson has made a 27.27 per cent total return in 2019.
LF Miton UK Value Opportunities seeks to buy “good companies at an attractive discount to their intrinsic value” from which Jackson constructs a concentrated portfolio of 50-80 stocks.
Performance of fund under manager
Source: FE Analytics
Jackson has overseen the fund since July 2016 during which time it has made a total return of 50.02 per cent, as the above chart shows.
The worst performing Alpha Manager from last year’s bottom-quartile set of UK equity Alpha Managers was the £3.2bn Merian UK Mid Cap fund overseen by Richard Watts.
The fund made a loss of 21.54 per cent last year, but has rallied to a 22.77 per cent gain this year.
Watts invest in the medium-sized companies from the FTSE 250 index with sound finances and earnings growth potential.
The fund suffered from unfavourable market conditions late in 2018, while the manager was also charged with establishing the Merian Chrysalis trust, which invests in later-stage private companies, noted analysts at FE Invest.
Since late 2018, the asset manager has increased exposure to domestically focused companies since late 2018 and – as such – has benefited from more positive Brexit-related news this year.
Performance of funds in 2019
Source: FE Analytics
Colleague Luke Kerr also featured at the bottom of the IA UK All Companies performance table last year, with a 19.4 per cent loss for the Merian UK Dynamic Equity but has managed to generate a 24.36 per cent gain in 2019.
Kerr’s £483.8m fund is a long/short UK equity fund focusing on companies outside the FTSE 100 index.
The manager wrote at the end of September that the outlook for the UK market has become more challenging as a result of mixed global economic data and geopolitical issues, but once Brexit uncertainty is lifted they should prove attractive to investors.
There were also two bottom-quartile IA UK Equity Income strategies overseen by Alpha Managers that have managed to turn around performance in 2019: Unicorn UK Income and Marlborough Multi Cap Income.
Unicorn UK Income – managed by Fraser Mackersie and Simon Moon – is the best performer of the two having made a 23.44 per cent gain this year after a 15.32 per cent loss in 2018.
Alpha Manager Mackersie and colleague Moon seek out undervalued but profitable and well-managed companies lower down the market cap scale that are lesser-known or understood, benefitting from inefficiencies in the small-cap space.
The £1.5bn Marlborough Multi-Cap Income fund, meanwhile, has returned 19.9 per cent so far in 2019 compared with a loss of 13.6 per cent loss last year.
Managed by Siddarth Chand Lall, the fund also hunts lower down the UK market cap range, with around two-thirds of the portfolio invested in mid- and small-sized companies.