A fund’s Beta shows its sensitivity to market movements. A Beta of one suggests that if the market moves up by 10 per cent, the fund will move up by the same amount.
A Beta higher than one means a fund can be expected to outperform in a rising market – although if the market falls it is likely to fall by even more.
Here we look at UK funds with the highest Beta compared with the FTSE All Share over the past three years.
High-Beta funds are risky investments, which makes it no surprise that mid cap, recovery and highly concentrated funds top the list.
Beta of IMA UK All Companies funds to FTSE All Share
Source: FE Analytics
Standard Life UK Equity Recovery, managed by David Cumming, comes out top of the list, with a Beta of 1.22.
The £33.5m fund is top decile in the sector over the past year, having returned 31.79 per cent while the All Share is up 17.34 per cent.
Performance of fund vs sector and benchmark over 3-yrs
Source: FE Analytics
The fund is a concentrated portfolio of 46 holdings, with 25.7 per cent in the mid cap FTSE 250 index.
Positions in Barclays and RBS amount to 5 per cent of the portfolio each, while the fund also has 4.8 per cent in Lloyds – the highest riser on the market last year.
Ed Legget’s Standard Life UK Equity Unconstrained is marginally less sensitive to the market, with a Beta of 1.16 that puts it joint-second on the list.
It has a similar number of stocks – 48 – but invests more heavily in mid caps, with 57.6 per cent in the FTSE 250 and a further 7.6 per cent in the FTSE Small Cap.
It has a more consistent track record than Cumming’s fund, with its three-year returns of 70.38 per cent putting it in the top decile of the sector’s performers.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
It is the best performer in the sector over five years, up 118.47 per cent.
However, Ed Legget (pictured) took it over in April of 2008, meaning that this figure reflects a few months of performance under the previous management team. The fund has the highest Sharpe ratio of any on the list – 0.62 – which suggests the extra risk it has taken on has been used efficiently.
Also with a Beta of 1.16 is Old Mutual UK Select Equity, which our data shows is a top-quartile performer over one, three and five years.
Simon Murphy’s £84.4m portfolio has 52 holdings, with high weightings to financials and miners – both currently out-of-favour cyclical sectors.
Standard Life has a third fund in the top-10: Standard Life UK Equity High Alpha, which our data shows has a Beta of 1.11.
Legget also runs this £49.1m portfolio, but with a mandate to provide income as well as growth. The fund is less concentrated, with 70 holdings, and also has a lower weighting to the FTSE 250, with 42.7 per cent in the index.
It has a yield of 2.73 per cent.
Another notable entrant on the list is the £118m Skandia UK Best Ideas fund, which has a Beta of 1.13 over three years.
This fund of managers allocates six managers from different fund groups a sixth of its resources each and asks them to pick their highest-conviction stocks.
The result is a portfolio tilted towards mid cap stocks, with 52.29 per cent in this index and 45.19 per cent in the FTSE 100.
The fund had a poor start to its life, but on reflection this seems to be due to its high-Beta nature.
It lost 38.64 per cent in its first two years, but this was in a falling market, with the FTSE All Share down 30.65 per cent over that time.
Skandia UK Best Ideas displays a clear pattern of outperformance in rising markets, however, and did particularly well last year, returning 27.48 per cent while the index was up 17.34 per cent.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
It requires a minimum investment of £1,000 and has a TER of 2.35 per cent.