LF Lindsell Train UK Equity, TB Evenlode Income and Liontrust Special Situations are among UK equity funds topping the tables with the best risk-adjusted returns over the past five calendar years, research by FE Trustnet shows.
Generally expressed as a number or rating, risk-adjusted returns measure how much risk has been involved in producing a return over a period of time. Some of the commonly-used measures of risk include standard deviation, alpha, beta, r-squared or Sharpe ratio.
The most commonly used measure is the Sharpe ratio, which calculates the level of a fund’s return over and above the return of a notional risk-free investment, such as cash or government bonds.
The difference in returns is then divided by the fund’s standard deviation (volatility). The resulting ratio is an indication of the amount of excess return generated per unit of risk.
Although there is no absolute definition of a “good” or “bad” Sharpe ratio, when analysing similar investments, the one with the higher Sharpe ratio has achieved more return while taking on no more risk than its peers — or, conversely, has achieved a similar return with less risk. A negative ratio would indicate that the fund actually made less than the risk-free amount.
Below, we highlight the six funds from the UK All Companies and UK Equity Income sectors consistently topping the risk-adjusted returns tables year-in, year-out over the last five calendar years.
We have done so by creating our own customised report table with the discrete annual Sharpe ratio between 2013 and 2017 for funds in the most popular UK sectors: the IA UK All Companies and the IA UK Equity sector.
Only funds in the first and second quartile for Sharpe ratio and performance in each of the past five calendar years have been included, resulting in the six funds shown below. Of course, some funds may have posted a higher Sharpe ratio over the full period, but have had individual years when they have underperformed.
Source: FE Analytics
LF Lindsell Train UK Equity
First up is LF Lindsell Train UK Equity, which has delivered the highest returns of the six funds. However, the fund’s strong performance has also been accompanied by higher volatility than the others, with FE Analytics indicating five-year cumulative volatility over the period of 11.18 per cent.
The £4.7bn fund has been overseen by FE Alpha manager Nick Train since launch in 2006. Train manages a very concentrated portfolio of UK stocks.
The five FE Crown-rated LF Lindsell Train UK Equity’s main sector allocation is to beverages and financial services with top holdings including Unilever, Diageo, RELX and the LSE.
Over the five years commencing to 31 December 2017, the fund has delivered a 117.33 total return, compared with a 68.27 per cent gain for the average fund in the IA UK All Companies sector and a 62.98 per cent gain for the FTSE All Share index.
Performance of fund over 5yrs
Source: FE Analytics
Lindsell Train LF Lindsell Train UK Equity has an ongoing charges figure (OCF) of 0.70 per cent.
TB Evenlode Income
TB Evenlode Income, managed by FE Alpha Manager Hugh Yarrow and co-manager Ben Peters, is the next fund with the best risk-adjusted returns year-in, year-out over five years.
The five FE Crown-rated fund targets long-term total returns with an emphasis on income and is popular among advisers, featuring in the Adviser Fund Index (AFI) Balanced and Cautious indices.
According to analysts at FE Invest, the £2bn fund tends to be less risky than its peers, has a low turnover and greater exposure to multinationals.
The analysts noted that it tends to trail in cyclically-driven markets and outperform in falling markets.
Over the five years ending in December 2017, TB Evenlode Income has delivered a 100.46 per cent total return compared to a 66.20 per cent gain for the average fund in the IA UK Equity Income sector.
TB Evenlode Income has an OCF of 0.90 per cent and a yield of 3.30 per cent.
R&M UK Dynamic Equity
Third on the list of funds with the best risk-adjusted returns tables over the last five calendar years is multi-cap strategy R&M UK Dynamic Equity.
The four FE Crown-rated fund has been overseen by William Lough since February following the departure of Philip Rodrigs. It targets capital growth through a concentrated portfolio of direct holdings and indirect holdings via derivatives in UK equities.
Over the last five calendar years, R&M UK Dynamic Equity has achieved a total return of 98.75 per cent compared with a 68 per cent gain for the IA UK All Companies sector and a gain of 62.98 per cent for the FTSE All Share benchmark, as the below chart shows.
Research by FE Trustnet shows that R&M UK Dynamic Equity along with TB Evenlode Income is one of the six funds that have outperformed the FTSE All Share in each of the past three years.
R&M UK Dynamic Equity has an OCF of 0.85 per cent.
JPM UK Equity Growth and JPM UK Dynamic
Five FE Crown-rated JPM UK Equity Growth and four FE Crown-rated JPM UK Dynamic are next on the list.
Both funds are in the IA UK All Companies sector and have the FTSE All Share as their benchmark and have several top holdings in common, but have different managers: Ben Stapley & Kyle Williams oversee JPM UK Equity Growth, while John Baker, Jon Ingram & Blake Crawford manage JPM UK Dynamic.
With a five-year cumulative volatility of 9.43 per cent, JPM UK Equity Growth is one of the least volatile of the six.
Performance of funds over 5yrs
Source: FE Analytics
Over the last five calendar years, JPM UK Equity Growth has delivered a total return of 90.92 per cent compared with a 68.27 per cent gain for the average fund in the IA UK Companies sector.
However, its sister fund has delivered a slightly better performance with a total return of 91.70 per cent over the past five calendar years.
JPM UK Equity Growth has an OCF of 0.90 per cent, while JPM UK Dynamic charges stand at 0.90 per cent.
Liontrust Special Situations
Liontrust Special Situations is the last fund of our list of those delivering top risk-adjusted returns during the past five calendar years. FE Analytics reveals the fund’s five-year cumulative volatility of 8.52 per cent is also the lowest of the six.
Indeed, the five FE Crown-rated fund was recently highlighted as one of 62 funds in the two main UK equity sectors that has posted higher returns than the FTSE 100 index with a lower annualised volatility.
The £3.5bn fund is overseen by FE Alpha Managers Anthony Cross and Julian Fosh and can invest in any stocks in the FTSE All Share Index regardless of their size or sector.
The managers employ the proprietary ‘Economic Advantage’ process, which seeks to identify companies that possess intangible assets producing barriers to competition and provide a durable competitive advantage allowing them to sustain a higher than average level of profitability for longer than expected.
Current biggest allocation is to FTSE 100 stocks (40.4 per cent) and FTSE 250 stocks (31.5 per cent) with top ten holdings including GlaxoSmithKline, Unilever, BP and Compass Group.
Over the five years commencing on December 2012, Liontrust Special Situations has delivered a 90.06 per cent total return compared with a 68.27 per cent gain for the average fund in the IA UK All Companies sector and a gain of 62.98 per cent for the FTSE All Share benchmark.
The fund has an OCF of 0.86 per cent.