By balancing the strategies employed by managers in the same asset class and geographical sectors, this gives an extra level of diversification that should ensure returns are less correlated and less dependent on certain trends.
Here are funds that use different and complementary strategies to profit from UK equities:
Cazenove UK Opportunities
Schroders responded to losing star manager Richard Buxton to Old Mutual by buying Cazenove Capital, and acquiring this £1.2bn fund run by FE Alpha Manager Julie Dean was seen by many to be the major motivation.
Dean constructs her portfolio according to her view of where the economy is in the business cycle, moving into and out of sectors that she thinks will do well in the immediate future.
She has been remarkably successful at doing this over the past half-decade, beating the average fund in the IMA UK All Companies sector in each calendar year, whether the market has moved down or up.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Data from Style Research shows that the manager’s exposure to certain sectors has varied substantially over quite short periods of time.
She moved her portfolio into high-Beta stocks in the up-year of 2009 and has done so again in the past few months.
She has also been happy to increase and decrease her exposure to mid caps as she sees fit, and currently has a bias to these companies.
Such a strategy is highly dependent on the manager's judgment of the business cycle, however, and no-one is likely to get this right for ever.
This is the chief risk of holding the fund on its own, according to the FE Research team.
The fund underperformed the sector and FTSE All Share in every calendar year between 2004 and 2007.
Overall, for the first four years of Dean’s tenure, it performed marginally below the sector and benchmark.
Performance of fund vs sector and benchmark Dec 2002 to Jan 2007
Source: FE Analytics
Dean was less involved with the fund for some of that time, however, although she was still the manager.
This only serves to underline the importance of her individual judgment to the strategy, although Cazenove has sought to address this by appointing FE Alpha Manager Steve Cordell as her deputy.
The fund is available with a minimum initial investment of £1,000 and has ongoing charges of 1.58 per cent.
JOHCM UK Opportunities
This fund looks for longer-term trends, what the managers John Wood and Ben Leyland describe as "long-term global tailwinds".
The team analyses the global economy for these trends before looking for the UK companies that are going to benefit from them.
The aim is to produce returns regardless of the economic environment but through a more long-term strategy than Dean’s fund.
The result has been a portfolio that tends to perform better in falling markets than rising ones, with the fund producing the third-best returns in 2011 out of the 270 funds in the sector.
Although it lost money in 2008 – the only year since it was launched in 2005 – the losses were the fifth-lowest out of 246 portfolios.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
Although it has outperformed the sector over five years, it has done so by less than Dean’s fund, making 50.49 per cent compared with the FTSE All Share’s 43.8 per cent.
The fund is set up to produce more stable returns, however, with holdings equally weighted and mainly in large cap companies.
It is available with a minimum initial investment of £1,000 and has a TER of 1.29 per cent.
Marlborough UK Leading Companies
Richard Hallett’s £87.9m portfolio aims to find the leading companies in their sector by looking for strong pricing power, visibility of earnings and internal growth.
These types of companies are those most sought after in times of economic trouble, according to the FE Research team, which led to the fund doing well in the falling market of 2008 but less well in the rising market of 2009.
It has more of a bias to mid cap companies than the JO Hambro fund, while it is more spread across sectors than both preceding portfolios.
In particular, it has kept a consistently high weighting to the more defensive utilities sector, and has kept a consistently lower sensitivity to the market – measured by its Beta.
It is a philosophy driven more by fundamentals rather than views on macro-economics, in contrast to the two previous funds, and the holdings have higher sales and earnings growth than the other two portfolios, according to data from Style Research.
The fund requires a minimum initial investment of £1,000 and has a TER of 1.55 per cent.
Standard Life UK Equity Unconstrained
Ed Legget’s £577m portfolio is far more cyclical than the Marlborough fund and has proved highly sensitive to the market in recent years.
The fund has the highest Beta in the sector over the past five years, of 1.29, and that figure is higher over three years, at 1.4.
It was the best-performing fund in the sector in 2012, making 44.12 per cent, and the second best-performing in 2009.
However, when the market goes down the fund really suffers, and it recorded some of the worst results in 2008 and 2011.
This highly aggressive strategy has paid off over the past five years, with the fund’s returns of 137.45 per cent the best of any fund in the IMA UK All Companies sector.
Over the same time the average fund in the sector has made 40.84 per cent.
Performance of fund vs sector over 5yrs
Source: FE Analytics
However, the volatility on the fund is the highest in the sector over that time, at 30.53 per cent, meaning that it may be wise to diversify it with some of the more defensive holdings on this list.
Standard Life UK Equity Unconstrained is available with a minimum initial investment of £1,000 and has a TER of 1.9 per cent.