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The best UK funds for alpha generation over the past decade

15 March 2018

FE Trustnet reveals the best funds for alpha over the last decade and compares this to the funds that topped the list a year ago.

By Jonathan Jones,

Senior reporter, FE Trustnet

Last year saw some considerable improvements for UK funds in terms of their 10-year alpha generation, according to the latest study from FE Trustnet.

Earlier this month we looked at how the 10-year alpha generation figures of the two major UK sectors in the Investment Association (IA) universe has differed from the year before when FE Trustnet ran a similar study.

Overall, the average fund in the IA UK All Companies and IA UK Equity Income sectors added more alpha – a measure of a funds over or underperformance relative to a benchmark – over the 10-year period to the start of 2017 than in the decade to the end of 2016.

The IA UK All Companies and IA UK Equity Income sectors on average generated 10-year alpha of 0.48 and 0.98 respectively at 2017’s close – a marked improvement on the year before where the figures stood at -0.12 and 0.11. 

This was a result of not only adding the strong year in 2017, which saw the IA UK All Companies and IA UK Equity Income sectors producing alpha of 4.41 and 2.69 respectively, but also the loss of a poor(er) year in 2007 to the figures.

Below, we look at the funds that have seen the biggest increase in their alpha scores between the two studies, representing the biggest beneficiaries of the changing period.

The most improved alpha generating funds in the IA UK Equity Income sector

 

Source: FE Analytics

Making the biggest jump is the four FE Crown-rated MI Chelverton UK Equity Income fund, which is run by David Horner and David Taylor.

The ninth-best portfolio for alpha generation when conducting this study last year, following an impressive 2017 when the fund was the second-best performer in its sector returning 24.27 per cent, it has jumped up to the second-highest alpha score this time around.

Between 2007 and 2017 it generated alpha of 2.32 but from 2008 to 2018 the £603m fund scored 6.27 – a difference of 3.95.


The portfolio, which specialises in small-caps rather than the FTSE 100 dividend stalwarts usually associated with the sector, has returned 190.34 per cent over the 10 years to the end of 2017, beating the sector’s 85.14 per cent and FTSE All Share’s 84.49 per cent.

Another big climber is the Unicorn UK Income fund, run by FE Alpha Manager Fraser Mackersie and Simon Moon.

The £669m fund was the top alpha-generating portfolio between 2007 and 2017 and has held onto that position in the decade from 2008 to 2018, thanks in part to a strong 2017 which saw it return 21.36 per cent to investors – the third-best in the sector.

Performance of fund vs sector and benchmark in 2017

 

Source: FE Analytics

Like MI Chelverton UK Equity Income, the fund has a small-cap bias which has made it one of the more volatile funds in the sector. However much of this has been the ‘right kind of volatility’ as it has the highest Sortino ratio.

Another worth mentioning is the five FE Crown-rated Man GLG UK Income fund, headed up by FE Alpha Manager Henry Dixon, which has swung from a negative alpha score between 2007 and 2017 to an alpha score of 0.66 – the third largest improvement from last year’s study.

The manager took over the fund in 2013 and last year it was the best-performing fund despite the return to favour for growth stocks jarring with Dixon’s value approach.

AXA Framlington Monthly Income and JOHCM UK Equity Income round out the top five biggest changes in the IA UK Equity Income sector.

Turning to the IA UK All Companies sector, another of FE Alpha Manager Fraser Mackersie’s funds tops the table – the five FE Crown-rated Unicorn UK Growth fund.

The fund is also run with a smaller companies bias and is most heavily weighted to software and computer services companies, which make up 21.1 per cent of the portfolio.


The fund was the 22nd best alpha generating fund when conducting this study last year but has risen to fifth after a strong 2017 that saw the portfolio return 32.4 per cent – the fourth-best in the sector.

Table of most improved alpha generating funds in the IA UK All Companies sector

 

Source: FE Analytics

Another big climber is the four FE Crown-rated Slater Recovery fund, run by FE Alpha Manager Mark Slater, which has jumped from 57th to 19th for alpha generation over the last decade.

The fund produced the second-best return in 2017 of 33.63 per cent while in 2007 it was a bottom quartile performer in the sector, losing 3.05 per cent.

This combination saw the fund fly up the alpha generation leaderboard and means that over the last decade it has returned 148.52 per cent – a top quartile performance.

Now it has a 10-year alpha generation score of 5.17 – a marked increase on when this study was conducted a year ago when it scored 1.73.

Slater Growth, also run by the FE Alpha Manager, remains the highest alpha producing fund however, with its 8.71 score a year ago improving to 11.79 this year – the fourth-best improvement.

Perhaps the most impressive change is in the Standard Life Investments UK Opportunities fund, managed by Abby Glennie, who took charge of the portfolio at the start of 2016.

The £139m fund was one of the worst performers in 2016 but bounced back last year, returning 31.62 per cent – the sixth-highest in the sector.

As such, it has jumped from a negative alpha score of -1.64 between 2007 and 2017 to 1.4 during the period from 2008 to 2018.

MFM Bowland and Montanaro UK Income complete the top five biggest changes from the study conducted last year.

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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.