This year has seen the return of volatility in markets after a relatively benign 2016 and 2017 and some are concerned as to whether or not it is the signal for the start of a bear market or whether the bull market of the last decade can continue.
In February there was a violent market correction based on concerns of quicker than anticipated interest rate rises from central banks but since then global markets have risen with little distraction.
Thanks to more normalised market conditions in 2018 the potential for another correction has been brought sharply back into focus yet some remain confident the bull market can continue.
With uncertainty abound, FE Trustnet looks at the funds in the Investment Association (IA) universe that have beaten their benchmarks in both rising and falling markets over the past five years
To do this, we firstly filtered out those funds that had an r squared ratio of 0.7 or below, leaving those that that are typically more closely correlated to its benchmark.
From this list we then filtered for the funds that had an upside capture of 110 per cent or more and a downside capture of 90 per cent or less during the past five years.
This means that a fund has performed at least 10 per cent better than in its benchmark in rising markets while protecting investors by at least 10 per cent in falling markets. All figures in this article are run over a period of five years to the end of May 2018.
Out of the 30 funds that remained, seven can be found in the IA Smaller Companies sector, five in the IA Global sector and five across the European sectors.
Source: FE Analytics
First up are the seven funds in the IA Smaller Companies sector, most of which are benchmarked against the Numis Smaller Companies index.
Today’s article would suggest that they also do well in rising markets, as the IA UK Smaller Companies is the most popular sector in the study.
The fund with the highest upside capture out of the 30 in total was the five FE Crown-rated Old Mutual UK Smaller Companies Focus at 178.14 per cent.
There were 41 months over the past five years when the benchmark Numis Smaller Companies index made a positive return. With the benchmark’s figure at 100 per cent, the fund made some 178.14 per cent of its gains.
Looking at the down markets, the fund had a downside capture of 81.04 per cent.
Over the entire five-year period it was the best performing fund in its sector, returning 183.73 per cent, while its benchmark returned 68.78 per cent.
Another small-cap Old Mutual fund made the list, Old Mutual UK Smaller Companies, which is the biggest of the seven funds with £1.4bn in assets under management (AUM).
Run by FE Alpha Manager Daniel Nickols, it had an upside capture of 139.36 per cent and a downside capture of 89.98 per cent.
The IA UK Smaller Companies fund that protected investors the most during the 19 negative months that the Numis Smaller Companies index suffered over the past five years was FE Alpha Manager Dr. Paul Jourdan’s TB Amati UK Smaller Companies fund, which had a downside capture of 57.14 per cent.
This means that if the negative return of the benchmark represents 100 per cent, the captured a little more than half of this. This was the lowest downside capture figure of the 30 funds studied. The fund had an upside capture of 137.75 per cent.
Other IA UK Smaller Companies funds in the list were AXA Framlington UK Smaller Cos, Jupiter UK Smaller Companies, R&M UK Equity Smaller Companies and Franklin UK Smaller Companies.
Source: FE Analytics
Moving on, the IA Global sector has typically been a sector in which active managers have struggled to beat their benchmarks because of the sheer amount of stocks available to a global fund manager but there are some that have achieved outperformance in both rising and falling markets.
Five funds passed our criteria with the highest upside capture coming from the Ardevora Global Equity fund (122.69 per cent), while its downside capture was 81.75 per cent.
Benchmarked against the MSCI AC World index it is co-managed by three FE alpha Managers: Ben Fitchew, Jeremy Lang and William Pattisson.
The five FE Crown-rated Seilern Stryx World Growth fund had the lowest downside capture of the global funds at 71.69 per cent against the MSCI World index and was the best performing of the five funds with a total return of 127.22 per cent over the past five years. In the up markets, the fund had an upside capture of 119.58 per cent.
It must be noted that the fund has recently changed hands as Raphael Pitoun stepped down in May as fund manager to hand over the reins to Corentin Massin, Michael Faherty and deputy manager Fernando Leon.
Goldman Sachs had two global funds feature in the list, including the £4.8bn GS Global CORE Equity Portfolio fund, which, against the MSCI World, had a downside capture of 88.45 per cent and an upside capture of 121.44 per cent.
Both the MSCI AC World and the MSCI World had 19 negative periods and 42 positive periods during the five years to the end of May 2018.
The two other global funds in the list were GS Global Small Cap Core Equity Portfolio and Kames Global Equity.
Source: FE Analytics
Last up is the European funds that beat their benchmarks in both rising and falling markets.
Over the past five years, European markets have typically been kind to active managers and allowed them to make strong gains on their benchmarks as eurozone concerns and political issues have caused wider dispersions in the market than in others.
JPM Europe Strategic Growth had the highest upside capture (124.48 per cent), while it had a downside capture ratio of 88.03 per cent.
Meanwhile, the five FE Crown-rated GAM Star (Lux) European Momentum had the lowest downside capture of 79.5 per cent. It’s upside capture ratio was 112.23 per cent.
The benchmarks for the funds, MSCI Europe and MSCI Europe Growth, both had positive returns in 37 months and negative returns in 23 months of the five years studied.
Meanwhile, the best performer of the group was the JPM Europe Smaller Companies fund, which returned 129.10 per cent over the five years.
It also achieved good performance in both up and down markets with capture ratios of 111.23 per cent and 88.33 per cent respectively.
The two remaining European funds are GS Europe CORE Equity Portfolio and Schroder European Alpha Income.
Only one fund from the largest sector in the Investment Association, IA UK All Companies, made the cut, the five FE Crown-rated Old Mutual UK Dynamic fund.
Managed by 2018 FE Alpha Manager of the year Luke Kerr, the fund had an upside capture of 139.88 per cent and a downside capture of 86.18 per cent, while producing a total return of 129.88 per cent during the past five years.
Source: FE Analytics
Other well-known funds that have beaten their benchmarks in both rising and falling markets during the past five years include Hermes Asia ex Japan Equity, Baillie Gifford Japanese, Candriam Bonds Credit Opportunities Classique Cap EUR and Veritas Asian.