Liontrust UK Growth, TB Evenlode Income and R&M UK Dynamic Equity are among six UK funds that have outperformed the FTSE All Share index in each of the past three calendar years, according to research by FE Trustnet.
In this study we considered the funds in the IA UK Equity Income and IA UK All Companies sectors against the FTSE All Share, although no funds in the former managed to achieve the feat.
Last year was a decent 12 months for active managers with 40 per cent of funds in the two sectors outperforming the index as the growth style, which many funds are geared towards, returned to favour.
2015 was the strongest year for active managers over the period, with 75 per cent of funds outperforming the index as miners – an underweight of many active managers – plummeted following concerns over the impact of a potential slowdown in China on demand.
Performance of sectors vs index over 3yrs
Source: FE Analytics
Conversely, in 2016 just 15 per cent of funds outperformed the index as the value trade roared back into fashion with miners and oil stocks, outperforming during the second half of the year as a Chinese slowdown emerged less impactful as first feared.
These changeable market conditions has made it difficult for active managers to beat the index consistently year-on-year.
Below, FE Trustnet looks at the six funds that have managed to outperform or equal the returns of the FTSE All Share in these very different market conditions.
(It should be noted that not all funds are benchmarked against the FTSE All Share index).
First up is the £143m MI Chelverton UK Equity Growth run by David Taylor and James Baker, which has been the top performer in the IA UK All Companies sector over the last three years, delivering a total return of 101.24 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The fund, which was launched in November 2014, invests primarily in stocks that can both grow faster than the market and are cash generative enough to self-finance this growth.
It is focused on fully list and companies on the Alternative Investment Market (AIM), with just 15.2 per cent in stocks with a market capitalisation of more than £1bn.
In its latest factsheet, the managers said it has begun to see more opportunities in the smaller companies space following the rise in the UK base rate last November.
“It has coincided with a more unsteady phase in the market, as geo-political issues and higher volume of Brexit noise have increased uncertainty,” the managers noted. “At the same time, liquidity in our mid- and small-cap segment is being absorbed by a high level of IPOs and fund raisings.
“This is serving to provide us with some attractively priced investment opportunities, both across our existing portfolio and amongst other investable candidates, which have met our financial and qualitative requirements.”
MI Chelverton UK Equity Growth has a yield of 0.93 per cent and a clean ongoing charges figure (OCF) of 1 per cent.
The only other fund sitting in the top quartile of the IA UK All Companies sector for each of the past three calendar years and outperforming the index is the £48.5m Unicorn UK Growth fund run by FE Alpha Manager Fraser Mackersie.
Like the Chelverton fund, the portfolio invests principally in smaller companies including companies listed on AIM.
The portfolio consists of 50 holdings, including a 21.8 per cent exposure to software & computer services firms and 9.7 per cent held in travel & leisure stocks.
The fund returned 32.4 per cent last year – the fourth-best in the sector – having made top quartile returns in both 2016 and 2015. Overall it has had seven calendar years of top quartile returns over the last decade.
Unicorn UK Growth has a yield of 1.3 per cent and an OCF of 0.94 per cent.
The £356m R&M UK Dynamic Equity has also had a strong three years, sitting in the top quartile of the IA UK All Companies sector in 2017 and 2016.
It is managed by FE Alpha Manager Philip Rodrigs, who took over the fund from Daniel Hanbury in January 2016 after the former stepped back to focus on the group's larger UK equity income fund.
Since Rodrigs took over the portfolio it has returned 38.29 per cent compared to the sector average’s 26.33 per cent and FTSE All Share’s 32.04 per cent total return.
Performance of fund vs sector and index since manager start
Source: FE Analytics
The fund invests in four main buckets, growth, recovery, quality and asset-backed stocks in an effort to help the portfolio perform in varying market conditions.
Currently the fund has 22.1 per cent in industrials, 18.2 per cent in financials and 14.9 per cent in oil & gas stocks – its top three sectors – though growth remains its largest style bias at 35.8 per cent.
R&M UK Dynamic Equity has a yield of 2.02 per cent and an OCF of 0.85 per cent.
Also making the list is the five FE Crown-rated Liontrust UK Growth fund run by FE Alpha Managers Anthony Cross and Julian Fosh.
The £301m fund invests in UK large- and mid-cap stocks using its proprietary ‘Economic Advantage’ process, which focuses on companies with unrepeatable competitive advantages relative to their peers such as intellectual property, strong distribution channels or significant recurring business.
The Liontrust portfolio is 53.1 per cent weighted to FTSE 100 companies with 33.4 per cent in mid caps and 8.2 per cent invested in AIM stocks.
The fund has returned 47.84 per cent over the past three years, with second quartile performances in 2015 and 2017 and top quartile returns in 2016. It has a yield of 2.18 per cent and an OCF of 0.89 per cent.
Following the same pattern is fellow five crown-rated fund TB Evenlode Income run by FE Alpha Manager Hugh Yarrow and deputy Ben Peters.
The fund previously sat in the IA UK Equity Income sector but now sits in the IA UK All Companies sector and therefore has a higher yield than others on our list at 3.3 per cent. It has an OCF of 0.9 per cent.
The fund also made second quartile returns in 2015 and 2017 with a top quartile performance in 2016. Over three years it has returned 46.21 per cent, as the below chart shows.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Andy O’Shea, head of investment research at Pharon Independent Financial Advisers, said: “I continue to like the Evenlode Income Fund as Yarrow’s interests are very much aligned with those of the investors in his fund.
“He has built an investment process that is strict but not rigid, screening on dividend yield, dividend growth and free cash flow generation metrics and this approach has resulted in an enviable track record.”
Earlier this week, O’Shea and others suggested funds that could accompany the portfolio for those investors fearful that the style could fall out of favour.
The final fund to outperform the FTSE All Share in each of the past three calendar years is the £63m Allianz UK Opportunities fund run by Matthew Tillett.
The portfolio is currently 31.6 per cent weighted to industrials, 23.1 per cent in financials and 21 per cent in consumer services stocks, though it can invest throughout all UK economic sectors.
It is the only fund on the list to register a third quartile performance during the one of the previous three calendar years in 2015, when the majority of active managers outperformed the index.
On a relative basis, its best performance was in 2015 when it returned 20.29 per cent, a top quartile performance in the IA UK All Companies sector.
The fund has a yield of 1.32 per cent and an OCF of 0.9 per cent.