TB Evenlode Income is the most consistent IA UK All Companies fund of the past decade, beating the FTSE All Share, the most common benchmark in the sector, in every one of the past 10 calendar years.
Of the 205 funds in the sector with a track record of this length, another four beat the index in nine of the past 10 calendar years, while a further eight funds managed the feat in eight.
Performance of funds vs sector and index
Source: FE Analytics
TB Evenlode Income is headed up by Hugh Yarrow and his deputy Ben Peters. The managers aim to identify businesses with large market share and/or competitive edges that can consistently generate high levels of recurring cash flows to be given back to shareholders as dividends.
They screen for profitable, asset-light, cash-generative companies with low debt before attempting to work out the qualitative drivers of each company. A price target for each stock is set after the managers model their cash flows.
The FE Investments team is a fan of the fund, saying: “The fund is an income product with a disciplined, uncompromising process consisting of quantitative screening, comprehensive modelling and the managers’ proven investment experience.
“The monitoring of a smaller universe of companies allows the managers to delve deeper into modelling and understanding companies, which makes for strong stock selection and fewer mistakes.
“Their processes and systems have become increasingly robust and efficient over the years, which sets Evenlode apart from other smaller management houses. With increasing commonality between larger-cap income managers, we find that this fund provides a consistent process and unique profile that will complement any investor portfolio in search of income.”
TB Evenlode Income made 246.74 per cent over the 10-year period in question, compared with gains of 129.63 per cent from the sector and 118.28 per cent from the FTSE All Share.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The £3.8bn fund has an ongoing charges figure (OCF) of 0.9 per cent and is yielding 3 per cent.
Next up is LF Lindsell Train UK Equity, which has beaten the index in nine of the past 10 calendar years and the sector in all 10.
Manager Nick Train believes truly exceptional businesses are persistently undervalued by the market. His strategy involves holding a concentrated portfolio of these businesses for the long term, paying little attention to snapshot valuation techniques such as price/earnings ratios as he feels they do not capture the true potential of such opportunities.
Despite the fund’s exceptional record, Square Mile Investment Consulting & Research downgraded the fund from AAA to A last year on liquidity concerns. John Monaghan, head of research at the group, said: “As the portfolio’s assets have increased, the stocks in the portfolio have become less liquid with less turnover – meaning they are traded less often compared with the rest of the market.”
He said this means the fund could potentially run into problems if major outflows are coupled with a sustained period of underperformance. “Admittedly, there are a lot of what-ifs, and we are just erring on the side of caution,” he added. “We still have conviction in the fund, just not as much as we had before.”
However, Train brushed off these concerns, saying: “Well, it’s a concentrated portfolio. But 90 per cent of the portfolio is in FTSE 100 companies or companies that are of FTSE 100 scale. We are invested in very, very substantive, multi, multi-billion pound companies. It doesn’t seem illiquid to me.”
Referring to potential problems in the event of mass redemptions from the fund, he simply pointed to a comment from one of his clients, who said: “If everyone wants their money back all at the same time, nothing is liquid”.
LF Lindsell Train UK Equity made 321.31 per cent over the period in question. It is £6.6bn in size and has ongoing charges of 0.65 per cent.
Lindsell Train also has the mandate for Aviva Inv UK Equity MoM 1, which has beaten the sector and index in nine of the past 10 years. It is run in a very similar way to LF Lindsell Train UK Equity.
Aviva Inv UK Equity MoM 1 made 327.66 per cent over the period in question. It has an OCF of 1.02 per cent.
Performance of funds vs sector and index over 10yrs
Source: FE Analytics
The final two IA UK All Companies funds to have beaten the FTSE All Share in nine of the past 10 calendar years, Liontrust Special Situations and UK Growth, are also run by the same management team: Anthony Cross and Julian Fosh.
Cross and Fosh run all their funds according to what they call the ‘Economic Advantage’ strategy – this means only investing in companies that possess at least one of three intangible barriers to competition: intellectual property, a strong distribution network, or high contracted recurring income.
Liontrust UK Growth is the only one of these two funds on the FE Investments Approved List, with the analysts on the FE Investments team saying: “The managers have proven the robustness of their process with the UK Special Situations and UK Smaller Companies funds.
“However, these funds have much higher allocations to small caps and, combined, are larger in size, which we believe results in significant liquidity risk.”
Liontrust UK Growth made 212.99 per cent over the period in question. It is £444m in size and has ongoing charges of 0.89 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Liontrust Special Situations made 314.47 per cent. The £5.6bn fund has ongoing charges of 0.89 per cent.