Unicorn UK Income and several other funds with a focus on the smaller end of the UK market have posted the most consistent monthly gains as the market recovered from the financial crisis, the latest FE Trustnet study shows.
Over the past six years equity markets across the globe have posted strong returns, as the graph below shows, after investor sentiment was gradually bolstered by an improving economic outlook and the wave of liquidity created by central bank’s ultra-loose monetary policies.
Performance of indices over 6yrs
Source: FE Analytics
During the 72 months of this period, the FTSE All Share has achieved positive total returns in 42 of them, while the S&P has been ahead in 49 and the MSCI World in 47. Japan’s Nikkei 225 has risen in 44 of the months and the MSCI Emerging Markets index lags the other with 41 months of gains.
However, a number of UK equity funds have managed to give their investors more positive months than the market – although it must be remembered that past performance is no guide to the future.
In the below article we take a look at the funds from the three main UK equity sectors that have been hit with the fewest negative months in the market recovery.
IA UK All Companies
Being the largest peer group in the Investment Association universe, this is a good place to start and just two funds of the 241 members with long enough track records have posted more than 50 positive months over the past six years.
The £192.8m MFM Slater Growth fund, headed up by FE Alpha Manager Mark Slater is in first place after handing its investors 52 positive months, while Henderson Global Care UK Income has been up in 51 months. As the graph below shows, both have beaten the FTSE All Share and the average IA UK All Companies fund over this time.
Performance of funds vs sector and index over 6yrs
Source: FE Analytics
MFM Slater Growth’s outperformance is striking, with the portfolio delivering around 200 percentage points more than its average peer and close to three times more than the All Share. While it’s the top fund in the sector for alpha generation, this has come with higher than average volatility.
The fund is benchmarked against the FTSE All Share but has an unconstrained mandate, which has allowed Slater to take significant exposure to the small and mid-cap parts of the market and has aided performance. Top holdings include Hutchison China Meditech, Walt Disney, Marston’s, Restore and Redcentric.
Slater’s risk-adjusted returns also prove impression, with MFM Slater Growth being the leading fund in its sector on metrics such as the Sharpe, Sortino and Treynor ratios.
Henderson Global Care UK Income has been managed by Andrew Jones since January 2012 and over that time it has returned 81 per cent, against the sector’s 59.37 per cent and the All Share’s 48.55 per cent. MFM Slater Growth, as point of comparison, has only just beaten it over this time with an 81.71 per cent gain.
The £143.8m fund invests in companies that are contributing to social wellbeing and the protection and wise use of the natural environment, although its top holdings are familiar names like AstraZeneca, Vodafone and National Grid.
Its relatively consistent positive returns mean the fund is first quartile among its peer for a range of metrics such as alpha, maximum drawdown, Sharpe, Sortino and Treynor ratios, maximum gain and annualised volatility.
IA UK Equity Income
Only one fund in this peer group can boast more than 50 positive months over the bull run – Unicorn UK Income, which has been up in 57 month out the last 72.
As the below graph shows, the £555.5m fund’s 232.88 per cent return over six years has been far higher than those of the average UK equity income fund or the FTSE All Share.
Performance of fund vs sector and index over 6yrs
Source: FE Analytics
The fund’s outperformance has been driven by a tendency to invest in smaller companies and Style Research shows the portfolio currently has 71 per cent of assets in this part of the market and another 17 per cent in mid-caps. Top holdings include Interserve, Cineworld and Marston's.
The bulk of the fund’s performance over this time was built up under the leadership of star manager John McClure, who passed away in the summer of 2014. Fraser Mackersie and Simon Moon, who had worked with McClure for some time, were then handed the fund.
Since then, the managers are first-decile for the number of positive months, being up in seven and only losing money in three. The FTSE All Share and the sector are split 50/50 between positive and negative months.
However when it comes to total returns, they have underperformed their average peer and benchmark after redemptions and the small-cap correction forced them to sell in a falling market. Despite this short-term underperformance, however, fund buyers rate the two managers highly, noting that they follow the same process that McClure used to make his name.
IA UK Smaller Companies
This sector has the most funds achieving more than 50 months of positive gains over the past six years, with 17 accomplishing the feat.
However, this is explained by the fact that small-caps have had a stronger run than the All Share with the Numis Smaller Companies ex Investment Companies index rising in 47 months of the last 72.
Three funds have posted 56 positive months – Artemis UK Smaller Companies, Scottish Widows HIFML UK Smaller Companies Alpha and Schroder Institutional UK Smaller Companies. The Scottish Widows fund is only available to the group’s clients and the Schroder portfolio is for institutional investors, so we’ll leave them to one side for now.
Artemis UK Smaller Companies, which is managed by Mark Niznik, has underperformed both the index and sector on a total return point of view with a 162.01 per cent gain over six years.
Performance of fund vs sector and index over 6yrs
Source: FE Analytics
The fund’s underperformance stems from Niznik’s focus on high-quality businesses, which makes it likely to hold up well in difficult marks but can hamper its returns in strong bull runs. In 2011, for example, the fund eked out a 0.91 per cent return when its average peer lost just over 9 per cent.
Our data shows that two funds have made positive returns in 55 months – Unicorn UK Smaller Companies and TB Amati UK Smaller Companies – while two more have done this in 54 months – Hermes UK Small and Mid Cap Companies and Liontrust UK Smaller Companies.
All four of these have outpaced the IA UK Smaller Companies average and the Numis Smaller Companies ex Investment Companies index over six years, with the Unicorn fund making the most after a 239.33 per cent gain.
