There are six top-quartile funds in the IA UK All Companies sector that have lost money in just one of the past 10 calendar years, according to research by FE Trustnet.
Of the 208 funds in the sector with a track record this length, 15 have made a positive return in nine of the past 10 calendar years. However, just six of them have accompanied this record of capital protection with top-quartile total returns.
IA UK All Companies funds with fewest number of down-years
Source: FE Analytics
Five of these six funds lost money last year, with Aviva Inv UK Equity MoM 1 the only one to buck this trend – it made a slight positive return of 0.98 per cent in 2018, compared with average losses from the sector of 11.19 per cent.
The fund has been managed by Lindsell Train since 2008 and is run in the same way and with the same methodology as LF Lindsell Train UK Equity – which also made the six-name shortlist.
Square Mile Investment Consulting & Research's analysts said there is much to be impressed with Lindsell Train’s strategy, which takes the view that truly exceptional businesses are persistently undervalued by the market.
“Such businesses tend to have high rates of return on capital and the reinvestment of profits into the business can compound into returns that can be impressive over the long term,” they added.
“Furthermore, these companies are likely to produce attractive levels of cash, with operations that do not continually require large amounts of funding.
“The managers pay little attention to snapshot valuation techniques such as price-to-earnings ratios as they feel that they do not capture the true potential of such opportunities.”
Aviva Inv UK Equity MoM 1 made 375.49 per cent over the 10-year period compared with gains of 144.96 per cent from the sector. It is £423m in size and has ongoing charges of 1.02 per cent.
The £6.2bn LF Lindsell Train UK Equity fund made 362.62 per cent over this time. It has ongoing charges of 0.68 per cent.
Performance of funds vs sector over 10yrs
Source: FE Analytics
LF Lindsell Train UK Equity was recently named as the most consistent IA UK All Companies fund of the past decade, having beaten the sector average in every one of the past 10 calendar years.
Aviva Inv UK Equity MoM 1 finished in joint second place, having beaten the sector in nine of the past 10 calendar years.
The fund it shared second place with – Liontrust Special Situations – also made the six-name shortlist.
Its FE Alpha Managers Anthony Cross and Julian Fosh use 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.
They also use this process on another fund that made the six-name shortlist: Liontrust UK Growth.
However, this fund invests predominantly in large- and mid-cap stocks and has half as much in small-cap and AIM companies as Liontrust Special Situations, which invests across the market capitalisation spectrum.
Liontrust Special Situations made 381.21 per cent over the 10-year period, the highest of any fund on the shortlist. It is £4.5bn in size and has ongoing charges of 0.87 per cent.
Performance of funds vs sector over 10yrs
Source: FE Analytics
The £347.5m Liontrust UK Growth fund made 231.19 per cent. It has ongoing charges of 0.91 per cent.
Next up is Neptune UK Mid Cap, which made 297.39 per cent over the 10-year period. FE Alpha Manager Mark Martin invests in three “silos” of stocks – economic recovery, structural growth and corporate turnarounds – with the aim of maximising risk-adjusted performance over the business cycle.
Martin is currently underweight UK-focused companies and the exposure he does have is to businesses with “structural earnings drivers and highly visible earnings pipelines”.
While the fund has only lost money in one of the past 10 calendar years, the 12-month period when it was in negative territory, 2018, saw it fall 18.67 per cent.
Neptune UK Mid Cap is £241m in size and has ongoing charges of 0.79 per cent.
Last on the list is Jupiter UK Special Situations, with gains of 183.12 per cent over the 10-year period. Manager Ben Whitmore structures his process around two proprietary quantitative screens. The first highlights stocks that are undervalued relative to their long-term history, while the second looks to identify companies that offer the most attractive combination of low valuations and high returns on capital.
Square Mile described this fund’s long term returns as “impressive” but said that while it is definitely one for value-focused investors to consider, they should be aware that the performance over shorter timeframes can lag behind the market.
“The fund is unconstrained in its nature and sector positioning tends to differ markedly from the benchmark,” it warned.
“Given this, and Whitmore’s unwavering adherence to and belief in his approach, this proposition is better suited for investors with a longerterm investment horizon.”
Jupiter UK Special Situations is £2bn in size and has ongoing charges of 0.76 per cent.