Volatility has become a ‘new normal’ for UK equities seemingly in recent weeks as well for a host of other stock markets popular with investors.
Falls and rallies of 1-2 per cent in a few hours in the FTSE seem to be taken to be unusually much less than they were in the past six or seven years with some such as Premier’s Simon Evan-Cook saying that greater short term speculation from the very big players in global markets is the culprit.
This causes the most concern for passive investors in the UK market mostly, as active funds in this space have tended to move around less in this crisis.
With the upsurge in popularity of these vehicles many investors have some exposure, but as it is nearly the weekend the journalists at FE Trustnet wish you all a more relaxing few days ahead!
If history repeats itself will these UK large cap funds rally hardest from the China crisis?
In a study from the middle of the week, senior reporter Daniel Lanyon surveyed the major periods of market weakness over the past decade and which funds managed to bounce back the hardest in the recovery period of each of these times .
Performance of index over 10yrs
Source: FE Analytics
If the FTSE All Share does rally back to its high in April investors in the likes of Schroder Recovery and Old Mutual UK Equity, two funds that made the list, will hope the managers do what they have done before and rally much harder than both the index and their peers in the IA UK All Companies and IA UK Equity Income sectors.
Click through to see which other funds managed the feat.
SCM warns on UK funds’ reliance on small- and mid-caps
Reporter Lauren Mason analysed research from online wealth manager SCM, which was published earlier this week. It found that a lot of funds in the IA UK All Companies and IA UK Equity Income sectors have been relying on the strong performance of small- and mid-caps for their outperformance.
The team believes that this research is another nail in the coffin for actively-managed funds, as it seems as though investment vehicles are riding the waves of the success of certain benchmarks rather than focusing on individual stock selection.
“Simply buying a combination of a FTSE 100 tracker with a FTSE 250 tracker closely resembles the performance of a typical actively managed UK equities fund, while saving over 80 per cent of the annual cost (based on a typical tracker charging circa 0.15 per cent ongoing charge versus a typical UK active fund charging circa 0.85 per cent ongoing charge),” Gina Miller, co-founder of SCM Direct, said.
“Following the outperformance of small- and mid-cap stocks, many of these stocks now command a premium valuation compared to their larger peers. This may negatively impact the future returns of many active funds in these two major sectors.”
The team found that, in their sample of 179 multi-cap funds, only four of them have beaten their market cap-adjusted returns in each 12-month period between 2010 and 2015.
Are the most popular UK small-cap managers now running too much money?
New editor Alex Paget took a look at the fund sizes of UK small-caps, and whether some of the ‘giants’ in the IA UK Smaller Companies sector have become too big for their boots.
According to data from FE Analytics, an equally-weighted portfolio of the largest funds in the sector has outperformed a similarly-weighted portfolio of the smallest funds over the last six years, since the start of the current upward phase in the market.
On closer inspection, Paget found that when the underperforming fund SF Webb Capital Smaller Companies Growth was removed from the smaller portfolio, it actually outperformed its larger rivals by 25 percentage points.
Premier’s Simon Evan-Cook said that he finds larger portfolios to be limited in terms of taking out a large position in small-caps because of their size.
“I wouldn’t say I have an issue with calling [larger smaller companies funds] small-cap as they still give investors exposure to the asset class and in terms of looking for best in class, you are looking at one of these managers,” Premier’s Simon Evan-Cook said.
“That’s said, we would prefer to back them 10 years ago when they were running funds which were much smaller because that is when they were in the sweet spot.”
How FE Alpha Manager Pease will build his new European growth fund
Crux Asset Management’s Richard Pease will soon launch a new European large-cap portfolio so editor Gary Jackson caught up with the FE Alpha Manager to discover his plans for the FP Crux European fund.
Pease has a strong track record investing in this part of the market. Over his time on the Henderson European Growth fund, which spanned July 2001 to October 2014, the portfolio posted a 181.60 per cent total return and was in the top-decile of the IA Europe ex UK sector.
FP Crux European will be run under his tried-and-tested approach, which looks for companies that aren’t highly capital intensive but generate good cash flow; are in industries with high barriers to entry and strong pricing power; have management teams with proven track records; and are at relatively conservative valuations versus their peer group.
And the thought of investing into a turbulent market is not worrying the manager, who says he is “delighted” to be able to start a portfolio at a time when assets are cheaper than they were.
“Funnily enough, I feel quite encouraged by the fact that some of the froth has been knocked off the market. We don’t see the current challenges in the same way as you would the financial crisis: it’s a different story. We like the fact the market is being indiscriminate,” he said.
Take another look at the story to discover Pease’s plans for the fund.