Only four of the 310 UK equity funds with track records of more than five years have outperformed the FTSE All Share in more than 80 per cent of the past 10 calendar years, according to data from FE Analytics.
UK equity managers have had a difficult time over the past few years with strong, unexpected growth recorded by the FTSE 100 index, particularly since last year’s referendum.
Valuations have also soared higher as investors have moved into the blue chip index looking for greater yield opportunities in the low rate environment.
Small and mid-cap managers who traditionally would have greater expectations of growth have been hit by a sharp sell-off post-referendum as investors sought out internationally-focused stocks.
Performance of sectors vs index over 2016
Source: FE Analytics
However, from the two UK equities sectors – IA UK All Companies and IA UK Equity Income - four funds with longer-term track records have managed to outperform more than 80 per cent of the time.
Below we take a closer look at three of those four funds, which have managed to outperform by more than 80 per cent of the calendar years for which they have a full-year’s performance over the past decade.
The fourth – Neptune UK Mid Cap – is predominantly focused on FTSE 250 stocks, a smaller component of the FTSE All Share index and unfair for comparison purposes.
Evenlode Income
The only fund with a five-year track record to outperform the FTSE All Share in every calendar year is Hugh Yarrow and Ben Peters’ £1.1bn Evenlode Income.
The five crown-rated fund has outperformed in seven years out of seven since its launch towards the end of 2009.
The fund is unlike others in its approach to investing as it screens out a number of companies that do not meet its investment criteria.
This approach means that several types of stocks are caught out including banks and miners that represent a significant proportion of the FTSE 100.
It is one of a number of funds to have been removed from the IA UK Equity Income sector for narrowly missing yield targets and is such benchmarked against the sector rather than the FTSE All Share.
As it is a UK multi-cap fund, it has been included in this study, and as the below graph shows, the fund has beaten the index during every calendar year. Its largest outperformance came in 2015 where it beat the FTSE All Share index by 7.46 percentage points.
Performance of fund vs FTSE All Share over 7yrs
Source: FE Analytics
Overall, since launch the fund has returned 153.16 per cent to investors, 59.28 percentage points ahead of the index and ahead of the IA UK Equity Income and IA UK All Companies sectors (99.08 and 96.84 per cent respectively).
Evenlode Income currently yields 3.4 per cent and has a clean ongoing charges figure (OCF) of 0.95 per cent.
AXA Framlington Blue Chip Equity Income
The smallest fund to consistently outperform the FTSE All Share index is the AXA Framlington Blue Chip Equity Income run by Jamie Forbes-Wilson.
The £85.8m fund is benchmarked against the FTSE 350 and has a 70.84 per cent weighting to large caps and 25.16 per cent in the mid-cap space.
Since its launch in 2009, the fund has returned 170.14 per cent, narrowly ahead of the FTSE All Share and IA UK All Companies sector by 1.64 and 5.84 percentage points respectively.
Performance of fund vs sector and FTSE All Share since launch
Source: FE Analytics
Despite getting off to a faltering start in 2009, the fund experienced just one calendar year where returns were lower than the FTSE All Share: 2016.
In its latest factsheet, Forbes-Wilson said the uncertainty throughout the year impacted performance. The manager said that headwinds in the shape of Brexit, the Trump presidency and expectations of higher inflation means he will continue to focus on quality companies with the ability to grow their dividends.
“These and many other factors remind us that we cannot foresee market movements but we can concentrate on finding good businesses with strong management teams who are able to pay growing dividends. This is what we will be concentrating on in the year ahead,” he said.
AXA Framlington Blue Chip Equity Income currently yields 3.66 per cent and has an OCF of 0.85 per cent.
Threadneedle UK Overseas Earnings
Rounding out the three funds is the Threadneedle UK Overseas Earnings, which has beaten the index 90 per cent of the time.
The fund has undergone a number of manager changes over the period under review but is currently overseen by Jeremy Smith.
The £112m institutional fund, which currently yields 2.7 per cent and has an OCF of 1.89 per cent is not widely available to investors but has outperformed in nine of the last 10 years.
Performance of fund vs All Share over 10yrs
Source: FE Analytics
As the above graph shows, the fund has outperformed its benchmark index by 39.49 percentage points and the IA UK All Companies sector by 43.03 percentage points.
The four crown-rated fund, holds 44 stocks and is overweight consumer services and is underweight financial stocks – a position that would have done well for much of the past decade.
The only year it failed to beat the FTSE All Share was in 2009, in the rebound from the financial crisis, where it returned 22.08 per cent compared to the index’s 30.12 per cent.
Conversely, the fund’s biggest year of outperformance was in 2013 when it made 9.68 percentage points more than its benchmark.