There are nine funds in the IA UK All Companies sector with the maximum Crown Rating of five, an Alpha Manager at the helm and a low correlation to at least one peer rated just as highly.
In the previous article in the series, Trustnet looked at the funds in the IA UK Equity Income sector with a Crown Rating of four and a correlation of less than 0.70 (where 1 = a perfect correlation and 0 = no correlation) to one of their highly rated peers.
However, the high number of IA UK All Companies funds that matched all of these criteria meant we had to apply a more stringent set of standards when studying to this sector – including a lower correlation score of less than 0.60.
Here we take a closer look at the nine funds.
Correlation of top-rated funds
Source: FE Analytics
As its name suggests, CFP SDL UK Buffettology aims to follow the ‘Business Perspective Investing’ strategy championed by Berkshire Hathaway chairman Warren Buffett.
Manager Keith Ashworth-Lord’s process involves looking for businesses that have what Buffett calls an economic moat, allowing them to consistently earn excess returns on the cost of capital, which will not be competed away.
Performance of fund vs sector and index since launch
Source: FE Analytics
“The beautiful thing is that businesses that have got this moat have certain tell-tale signs that we look for,” he told Trustnet last year.
Among these tell-tale signs are strong balance sheets and cash flows, evidence of steady growth, and high margins which must be stable or rising.
“And last but not least, we like businesses that are easy to understand and where we know where they will be in three or five years’ time, they won’t be disrupted,” he added.
CFP SDL UK Buffettology is the best performer in the sector since launch in March 2011, making 240.05 per cent, compared with 83.77 per cent from the average fund and 81.97 per cent from the FTSE All Share.
The £1.2bn fund has ongoing charges of 1.19 per cent.
Franklin UK Mid Cap’s manager Paul Spencer focuses purely on the FTSE 250 index, aiming to invest in higher-quality companies that he holds for the long term.
Analysts at Square Mile Investment Consulting & Research said Spencer’s approach centres on the sustainability of the business, the strength of the company’s management and balance sheet and finally, valuation.
“That said, he is an active fund manager and turnover can increase dramatically over short time periods as he repositions the portfolio in light of underlying market conditions and as new opportunities present themselves,” the analysts added.
Franklin UK Mid Cap has made 68.98 per cent over the past five years, compared with gains of 38.57 per cent from its sector and 40.15 per cent from the FTSE All Share.
The £1bn fund has ongoing charges of 0.82 per cent.
JOHCM UK Dynamic invests in distressed businesses that have identified their problems and are in the process of solving them.
The FE Invest team said this is a fund that requires patience, pointing out a restructuring or recovery process can take time to come to fruition and even longer before it is acknowledged by the market.
However, it said manager Alex Savvides’ unique ‘dividend recovery’ process and active engagement with company management are attractive features of this fund.
“Furthermore, the manager is not averse to investing in smaller companies which are often overlooked by the market, and this has provided good value opportunities,” the team added.
JOHCM UK Dynamic has made 47.42 per cent over the past five years.
The £1.7bn fund has ongoing charges of 0.79 per cent. However, it also has an additional charge of 15 per cent of outperformance of its FTSE All Share benchmark, with any underperformance carried forward.
Nick Train, manager of the LF Lindsell Train UK Equity fund, believes that truly exceptional businesses are persistently undervalued by the market.
The team at Square Mile pointed out there are few companies that meet the manager’s strict investment criteria and, as a result, the final portfolio is concentrated across a low number of holdings and is often absent from large parts of the market.
“Overall, we believe that there is much to be impressed about by this strategy,” the Square Mile team added. “However, this fund is perhaps better suited to investors that have little interest in the month-to-month and year-to-year performance of their investments, but instead seek attractive returns over very long time periods.”
LF Lindsell Train UK Equity has made 85.55 per cent over the past five years. The £7bn fund has ongoing charges of 0.65 per cent.
Liontrust UK Growth is managed by Anthony Cross and Julian Fosh, who run all their funds according to what they call the ‘Economic Advantage’ strategy – this means only investing in companies that possess at least one of three intangible barriers to competition: intellectual property, a strong distribution network, or high contracted recurring income.
FE Invest's analysts said that because Fosh specialises in large companies and Cross on mid- and smaller-sized firms, the fund provides good core UK equity exposure.
Liontrust UK Growth has made 61.99 per cent over the past five years.
The £417m fund has ongoing charges of 0.91 per cent.
Royal London Sustainable Leaders Trust
The analysts at FE Invest said this fund’s manager, Mike Fox, has an investment style that brings something different to the table, as he combines the principles of socially responsible investment (SRI) with in-depth company financial analysis.
“This process guides him to companies considered leaders in environmental, social and governance issues with the potential for growth,” they said.
“Fox’s track record highlights the benefits of his style. Despite several periods of outperformance from cyclical sectors and natural resources companies, the fund continues to beat its peers over the long term.
“He is a very experienced manager who has shown great capacity to add returns through positive stockpicking.”
Royal London Sustainable Leaders Trust has made 73.82 per cent over the past five years.
The £860m fund has ongoing charges of 0.76 per cent.
The primary valuation tool used in the Slater Growth fund is the PEG (price-to-earnings growth) ratio.
Other characteristics manager Mark Slater screens for include: sustainable and above-average earnings growth prospects; strong cash flows; a competitive advantage; a positive recent trading statement; and an absence of heavy selling by directors – ideally with some buying.
Performance of funds vs sector and index
Source: FE Analytics
Slater Growth has made 67.23 per cent over the past five years.
The £557m fund has ongoing charges of 0.79 per cent.
Slater runs another fund that made this list: Slater Recovery.
The core of the fund is made up of companies with a low P/E (price-to-earnings) ratio in relation to their earnings growth, as well as a strong cash flow and financial position. It also uses a number of secondary methodologies including: recovery situations; shares trading at a discount to asset value; companies with large amounts of cash on the balance sheet that also own promising businesses; and companies offering attractive dividend yields and trading on low P/E ratios.
Slater Recovery has made 77.06 per cent over the past five years.
The £59m fund has ongoing charges of 0.8 per cent.
Last up is TB Evenlode Income. Its managers Hugh Yarrow and Ben Peters aim to identify businesses with a large market share and/or competitive edges that can consistently generate high levels of recurring cashflows that can be given back to shareholders as dividends.
The FE Invest team said the fund’s comprehensive processes and modelling system result in strong stock selection and fewer mistakes, setting Evenlode apart from other smaller management houses.
“With increasing commonality between larger-cap income managers, we find this fund provides a consistent process and unique profile that will complement any investor portfolio in search of income,” the analysts added.
Evenlode Income has made 81.13 per cent over the past five years.
The £3.4bn fund is yielding 3.1 per cent and has ongoing charges of 0.9 per cent.