The UK equity market has endured a number of challenges in recent years as the prospect of Brexit become a reality and previously taken-for-granted assumptions about the economy were put into disarray.
The landslide general election victory by the Conservative party under Boris Johnson has, however, seen sentiment towards the UK improve with greater clarity around the direction of Brexit.
Nevertheless, it has been a difficult environment for UK equity managers to consistently outperform.
As such, Trustnet looked for IA UK All Companies and IA UK Equity Income funds that have managed to outperform the FTSE All Share – a common benchmark for UK equity strategies and investors – in each of the past five years.
There were just four, all from the IA UK All Companies and sector, beat the UK equity benchmark in each year since 2015: Allianz UK Opportunities, Liontrust UK Growth, MI Chelverton UK Equity Growth and TB Evenlode Income.
Below, Trustnet takes a closer look at each of the four funds.
Allianz UK Opportunities
The first fund on the list is the £126.8m Allianz UK Opportunities fund, managed by Matthew Tillett since July 2013.
The style-agnostic fund aims to beat the FTSE All Share over rolling three- and five-year periods by investing in concentrated portfolio of companies that are significantly undervalued relative to their assets or long-term earnings potential.
Writing last month, Tilletsaid the general election result was a “clear positive for the UK equity market” despite the fact that some extreme mis-pricings in the market had now been corrected.
“Valuations within the UK equity market remain attractive and we expect investor sentiment towards the UK to continue to improve during 2020 and beyond,” he said.
Performance of fund vs index in past 5yrs
Source: FE Analytics
Of the four funds, Allianz UK Opportunities was the best performer in 2016 – the year of the EU referendum – when it made a 20.29 per cent gain.
During the past five years to the end of 2019, the fund made a total return of 63.22 per cent compared with a gain of 43.84 per cent for the FTSE All Share index.
Under Tillet, the fund has returned 83.38 per cent to 31 December 2019 against the benchmark’s 59.67 per cent gain.
Liontrust UK Growth
The £444.9m Liontrust UK Growth fund also makes the list for UK equity funds consistently outperforming the FTSE All Share in each of the past five years.
The fund is overseen by Alpha Managers Anthony Cross and Julian Fosh, who have run the fund since March 2009.
Cross and Fosh employ their ‘Economic Advantage’ process to identify large- and mid-cap companies with durable competitive advantages allowing them to defy industry competition and sustain higher-than-average levels of profitability for longer than expected.
Performance of fund vs index in past 5yrs
Source: FE Analytics
Analysts at FE Investments said the managers’ focus on high quality companies protects the fund during weaker market conditions, while exposure small-caps has helped drive performance albeit increasing its sensitivity to the UK economy.
Over the five years to 31 December 2019, Liontrust UK Growth made a return of 66.51 per cent.
The fund had made a total return of 321.08 per cent under Cross and Fosh, compared with a gain of 214.25 per cent over the same period.
MI Chelverton UK Equity Growth
Next on our list is the £479.8m MI Chelverton UK Equity Growth fund, which is overseen by James Baker and Edward Booth.
Focusing further down the market cap scale than many of their peers, Baker and Booth seek out companies that are highly cash generative giving them the ability to fund their own growth. Typically, holdings in the portfolio will have some form of competitive advantage that gives them high margins.
MI Chelverton UK Equity Growth was the strongest performer of the four strategies in three of the five calendar years under review and made a total return of 40.58 per cent last year alone.
Performance of fund vs index in past 5yrs
Source: FE Analytics
As such it was the strongest performing strategy of the four funds in the study, returning 157.7 per cent during the period under review. The next best performer, TB Evenlode Income, in comparison, made a gain of 82.36 per cent.
Baker joined Chelverton Asset Management from Rathbones in June 2014 and was appointed to the fund as manager in October 2014. He was joined by Booth in November 2017.
TB Evenlode Income
The final entrant on the list is the £3.7bn TB Evenlode Income fund and is the only equity income strategy to have outperformed the index in each of the past five years.
Managed by Alpha Manager Hugh Yarrow and Ben Peters, TB Evenlode Income is also the only fund of the four to deliver a positive return in each of the past five calendar years: its three peers in the study and the FTSE All Share all fell to a loss in 2018 while it was up by 0.39 per cent.
Performance of fund vs index in past 5yrs
Source: FE Analytics
Like the other funds in the study, the strategy is a concentrated portfolio – owning around 40 holdings – and has a quality bias albeit with a greater focus on income and dividend growth.
“The outlook for 2020 is, as normal, complex. Sentiment has improved materially towards the outlook for both the UK and global economy during 2019,” Yarrow and Peters wrote in their December factsheet.
“However, UK political uncertainties remain, global geopolitical risk is elevated, global deflationary pressures persist, and valuations are not as attractive as they were a year ago.”
TB Evenlode Income launched in October 2009 and has made a total return of 257.71 per cent gain since then.