Schroder Recovery, Majedie UK Focus and Standard Life Investments UK Equity Recovery are among some of the UK equity funds to exhibit the most volatility during October over the last five years, according to research from FE Trustnet.
However, most of these funds have gone on to achieve some of the highest returns within their respective UK equity sectors, having significantly outperformed the FTSE All Share index over the last five years.
October is traditionally one of the most volatile month of the year and has a long track-record of recording some of the worst single-day falls in the market. 
Indeed, according to Architas’ Adrian Lowcock (pictured), October is the worst month for single-day falls in the FTSE 100 and, since 1984, seven out of the 10 largest corrections have happened in October.
While he believes October’s reputation for volatility is well-earned, he said investors need to put their fears in perspective. For instance, he pointed out that nine of the 10 largest falls in the FTSE 100 were linked to either the global financial crisis or the 1987 crash.
“At present there is nothing on the horizon to suggest an extremely volatile October, but markets are unusually settled and volatility is likely to pick up again,” he said. “Events can change quickly so it is important to have a portfolio which can function in a range of conditions.”
For those who invest in actively-managed funds, we decided to see whether a fund’s ability to navigate October volatility had any bearing on its performance (although, of course, past performance is no guide to future returns).
To do so, we tried to filter through funds in the IA UK All Companies and IA UK Equity Income sectors which have experienced a lower weekly annualised volatility than the FTSE All Share during each October over the last five years.
Out of 310 vehicles with long-enough track records, only one fund managed to achieve the feat – the five FE Passive Crown-rated Aviva Investors UK Index Tracking.
At the opposite end of the spectrum, 20 out of 310 funds (or 6.25 per cent) have been more volatile than the FTSE All Share during each October over the last five years.
Out of these, 16 are active funds, 12 of which (or 77.77 per cent) have outperformed the index over five years to the end of 2016 and eight of these (or 75 per cent) are in the top quartile for their returns relative to their average peer within this time frame.
Source: FE Analytics
Should investors be worrying about volatility, or using it as a tool to measure active management?
Lowcock said: “In active funds, you would expect a higher level of volatility because you expect them to be hunting for alpha – they’re hunting for above-market returns.
“Volatility itself isn’t necessarily a bad thing and that’s why you’re seeing a correlation between active management and better returns because, effectively, it is stock-picking.
“Volatility can be up or down. If the managers get it correct, then you get a better return. If you have volatility above the index, then also it shows you that you’re doing something different to the index.”
Out of the eight top-quartile funds on our list to have been volatile during the last five Octobers, Standard Life Investments UK Equity Recovery has won the top spot for its total return of 155.96 per cent to the end of 2016.
This means it has outperformed the FTSE All Share and its average peer by 94.12 and 86.12 percentage points respectively.
Performance of fund vs sector and index over 5yrs to 2017
Source: FE Analytics
The £41m fund has a concentrated portfolio of 47 stocks and, as its name suggests, looks to invest in stocks which manager Andrew Hunt believes are attractively-priced but are set to positively surprise the broader market as a result of turnaround stories.
In fact, out of the eight funds on the list, three of them are labelled as ‘recovery’ funds.
Lowcock said: “It does make sense that it is more recovery and value funds to some extent because, certainly in the last 18 months, you’ve seen a few big leaps in the value sector.
“Also, the value plays have been quite volatile in recent years and that’s usually coming from low bases, so they don’t necessarily show up on the top of performance charts all the time – but they have been quite volatile. If you get the right value play, then the recovery can be huge as well.”
It should therefore come as no surprise that, second on our list for its October volatility and total return over five years is R&M UK Equity Long Term Recovery which, to the end of 2016, achieved gains of 146.4 per cent.
What may come as a surprise to investors is that, despite its October volatility, it has a highly-diversified portfolio of 224 stocks. However, all of these are turnaround stories which can experience significant rises and falls in price.
Other funds to have made our list include Schroder Recovery, Majedie UK Focus and, in the IA UK Equity Income sector, R&M UK Equity Income.