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The most consistent funds of the decade: IA UK All Companies

09 January 2018

One name likely to be familiar with FE Trustnet readers has a 100 per cent record of beating the sector in calendar years over the period in question.

By Anthony Luzio,

Editor, Trustnet Magazine

LF Lindsell Train UK Equity is the most consistent IA UK All Companies fund of the last decade, according to data from FE Analytics, beating its sector average in every single one of the past 10 calendar years.

Franklin UK Mid Cap and Liontrust Special Situations beat the sector average in nine of the past 10 years, while 11 others managed to beat it in eight.

Most consistent IA UK All Companies funds over 10yrs

Name2017 (%)2016 (%)2015 (%)2014 (%)2013 (%)2012 (%)2011 (%)2010 (%)2009 (%)2008 (%)Years of outperformance
LF Lindsell Train UK Equity 20.66 11.31 11.48 7.25 35.33 21.38 1.14 30 34.86 -25.76 10
Franklin UK Mid Cap 26.43 -0.23 14.32 1.93 37.68 27.54 -6.06 32.6 44.81 -27.1 9
Liontrust Special Situations 16.76 15.77 13.89 1.88 21.19 23.6 9.6 35.24 41.2 -25.9 9
Aviva Inv UK Equity MoM 1 22.25 10.45 8.86 6.62 38.29 21.58 -2.46 27.18 31.93 -32.78 8
Baillie Gifford UK Equity Alpha 23.84 12.9 8.43 -11.78 28.36 19.59 -4.41 24.44 24.58 -29.06 8
BlackRock UK Equity 14.66 14.79 6.32 1.5 21.47 11.45 -5.78 21.64 33.13 -28.68 8
EdenTree UK Equity Growth 20.19 2.43 11.95 1.23 44.11 25.21 -1.6 22.39 25.53 -27.72 8
F&C UK Mid Cap 18.5 5.28 13.49 9.05 36.05 22.55 -3.46 33.39 45.41 -34.91 8
GVQ UK Focus 7.97 12.73 6.74 6 44.25 19.62 -4.96 30.45 52.16 -42.42 8
Old Mutual UK Mid Cap 27.99 10.01 24.72 8.14 38.38 30.98 -9.55 27.91 34.23 -30.76 8
R&M UK Dynamic Equity 18.46 16.75 4.99 1.74 34.54 19.7 -0.56 8.34 15.32 -30.99 8
Royal London UK Mid-Cap Growth 23.6 0.56 13.18 5.48 38.19 25.9 -7.83 33.03 49.31 -23.98 8
Threadneedle UK Mid 250 27.55 -2.91 20 3.75 30.69 27.12 -8.81 27.09 37.95 -30.53 8
Unicorn UK Growth 32.4 17.18 10.96 -8.08 46.29 19.19 1.64 22.02 34.81 -35.51 8
IA UK All Companies 13.99 10.82 4.86 0.64 26.21 15.05 -7.04 17.53 30.4 -31.96 N/A

Source: FE Analytics

FE Alpha Manager Nick Train, who has run LF Lindsell Train UK Equity since launch, is famed for his concentrated, low turnover approach – he believes the market tends to undervalue many top-quality companies that deliver a high return on capital and that the reinvestment of profits back into these businesses compounds into market-beating returns over the long term.

However, the analysts at Square Mile said that while the strategy has generated impressive returns over the long term, investors would be foolish to ignore its long-­term nature.

“Returns generated tend to be variable and do not always correlate closely with those of the index,” the team explained.

“This fund may best suit investors who have little interest in the month-to-month and year-to-year performance of their investments but seek attractive returns over very long time periods.”

For example, one of Train’s holdings, Daily Mail and General Trust, fell 23 per cent at the end of November after the release of annual results which included various write-downs. However, Train was unperturbed, saying the group remained notably undervalued on a “sum of its parts” basis.

Top-10 holding Burberry also fell by double digits in November after chief executive Marco Gobbetti revealed plans to reinvest in the business, which were expected to hit short-term profits. Again though, Train dismissed the fall.

“It is always amusing to see shareholders and the media falling for a new CEO’s traditional downgrading of expectations – so that they can subsequently be exceeded – but fall for it they do,” he wrote in a letter to shareholders.

“However, even if the costs of the brand-repositioning do mean lower earnings growth for a couple of years, we nonetheless gladly welcome Gobbetti’s strategy.”

There are also concerns that the quality stocks favoured by Train may be overvalued – the era of quantitative easing and record-low interest rates has pushed many investors out of cash and bonds and into defensive equities. There are worries the inflated values of the latter could quickly unwind as monetary policy begins to normalise.

This is not a new criticism – in an article from November 2015, then FE Trustnet news editor Alex Paget asked “Am I an idiot for buying this fund that has never really underperformed?” – before listing the inflated price of the quality stocks favoured by Train as reason to be wary.

However, the fund has significantly outperformed both its sector and benchmark since then, with gains of 37.29 per cent.

The £4.86bn LF Lindsell Train UK Equity fund has ongoing charges of 0.72 per cent, which is below the sector average of 0.88 per cent.

It has made 247.25 per cent over the 10-year period in question, compared with gains of 87.66 per cent from the sector average and 84.49 per cent from its FTSE All Share benchmark.

Performance of fund vs sector and index over 10yrs

Source: FE Analytics

This is the sixth-highest return in the sector of the 205 funds with a track record of this length; however, it was beaten by one of the funds that outperformed the sector in nine of the past 10 calendar years – Liontrust Special Situations, which made 264.28 per cent.

Liontrust Special Situations is headed up by FE Alpha Managers Anthony Cross and Julian Fosh, who use 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.

The team at Square Mile described this as “a well considered and defined investment process” that steers the managers towards relatively steady businesses that are gradually growing and generating high levels of cash.

“It is important to note that the fund tends to be structurally absent from certain sectors, so performance should be expected to deviate from the index at times,” they added.

“Pleasing for the current fund holders, this performance deviation has been impressively positive.”

Cross recently pointed to an increase in patent applications as reason to be optimistic that the bull run in markets could continue.

“To the extent that patent applications are a proxy for productivity improvements and future economic growth, the trend is very encouraging,” he said.

“Data from the World Intellectual Property Organisation and RWS Holdings, the world’s leading provider of patent translations and intellectual property support services, shows a strong upward trend in patent applications in recent years.

“This reminds us that secular growth in man’s ingenuity cuts through the cyclicality of different economies in the long-run. We expect this trend to be extended when 2017 and 2018 data is released.”

Liontrust Special Situations is £3.5bn in size and has ongoing charges of 0.87 per cent.

Franklin UK Mid Cap has made 239.55 per cent over the period in question, putting it seventh in the sector over this time.

Performance of funds over 10yrs

Source: FE Analytics

Its FE Alpha Manager Paul Spencer aims to invest in higher quality companies, focusing on the sustainability of the business, the strength of its management and balance sheet and, finally, valuation.

Spencer recently said that investors who are steering clear of domestically focused businesses in light of concerns over Brexit could be shooting themselves in the foot – not because he believes the environment could quickly change for the better, but for valuation reasons.

“There comes a point where you’ve been offered a really interesting valuation proposition and now is the time to take the view that these stocks aren’t being properly represented by the market share price,” he explained.

“You’re here to make money and we think on a long-term view we can make money by [having] one or two of these in the portfolio and sitting and waiting for valuations to come to us again.”

Square Mile described Franklin UK Mid Cap as “a solid proposition for investors looking for a pure FTSE 250 play run by an experienced and pragmatic investor”, adding: “The fund's emphasis on minimising capital losses should mean a less bumpy ride during volatile market conditions.”

The fund is £1bn in size and has an ongoing charges figure (OCF) of 0.82 per cent.

A recent article on FE Trustnet looked at the most consistent funds in the IA UK Equity Income sector of the past decade.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.