Just over 13 per cent of funds in the two main UK equity sectors have generated a higher total return than the FTSE All Share this year while giving their investors a less rocky ride, research by FE Trustnet has found. 
Between 1 January and 17 December, the FTSE All Share index fell by 8.13 per cent on the back of the US/China trade war, Brexit uncertainty and signs of weaker global economic growth, prompting disappointing returns for investors in IA UK All Companies and IA UK Equity Income funds.
These challenging conditions also caused an uptick in volatility from previously subdued levels, with the annualised volatility for the FTSE All Share growing from 7.79 per cent in 2017 to 11.15 per cent this year.
The volatility of the average IA UK All Companies member moved from 5.72 per cent to 11.32 per cent while in the IA UK Equity Income sector it went from 5.66 per cent to 10.35 per cent.
Source: FE Analytics
Given how difficult 2018 has been, FE Trustnet reviewed the IA UK All Companies and IA UK Equity Income sectors to see how many of their members have been able to post a higher total return than the FTSE All Share with lower annualised volatility and a smaller maximum drawdown.
Our data shows that 49 of the sectors’ 355 funds – or 13.8 per cent – have beaten the market on all three measures we examined, with 29 coming from the IA UK All Companies peer group and 20 from IA UK Equity Income.
It’s important to note that not many funds have been able to generate a positive total return over the past year; just seven funds from both sectors are in the black, six of which also beat the FTSE All Share when it comes to volatility and maximum drawdown.
Those six funds can be seen in the table below, which ranks the 20 funds with a better total return than the index along with lower volatility and maximum drawdowns.
TB Evenlode Income tops this list, which is ordered in terms of total return. Headed up by FE Alpha Manager Hugh Yarrow with Ben Peters as deputy, the £2.6bn fund has a strong long-term track record and is top decile in the IA UK All Companies sector over one, three and five years.
The FE Invest team, which has the five FE Crown-rated fund on its Approved List, said: “Since inception the fund has produced an excellent track record, beating both peers and the FTSE All Share benchmark in seven of the last eight years.
“The fund tends to be less risky than peers, has a low turnover and has more exposure to international businesses. Expect the fund to trail relatively in cyclically driven markets and to outperform in falling markets.”
Source: FE Analytics
Aviva Inv UK Equity MoM 1, which appears in second place, is managed by Lindsell Train Investments and is not widely available on third-party platforms.
However, FE Alpha Manager Nick Train runs the LF Lindsell Train UK Equity fund, which appears in seventh place after a broadly flat 2018; Train’s approach sees him focus on durable, cash-generative franchises with the concentrated portfolio tending to hold global consumer brands, leisure and media companies, and retail banks.
In third place is Schroder Responsible Value UK Equity, which is managed by the same value investing team in charge of Schroder Income (which comes in fourth place and is the only member of the IA UK Equity Income sector to make positive returns in 2018).
CFP SDL UK Buffettology, headed up by FE Alpha Manager Keith Ashworth-Lord, is having a strong 2018; this comes after being top-quartile in 2017 and the IA UK All Companies sector’s highest returner in 2015.
“Ashworth-Lord has been a long-term admirer of the ‘business perspective’ investment style set up by Ben Graham and Warren Buffett,” the FE Invest team said. “We have been impressed by the disciplined approach taken by the investment team. Ashworth-Lord has strong investment disciplines and will stick to them.”
The final UK fund to make positive returns in 2018 while having lower volatility and maximum drawdown than the FTSE All Share is Castlefield B.E.S.T UK Opportunities. This fund is managed by Mark Elliott, who has an unconstrained approach when looking for stocks with the potential for above-average capital growth; top holdings include Park Plaza Hotels, Hikma Pharmaceuticals and Cineworld Group.
Source: FE Analytics
The above table takes the same research but ranks the funds in terms of their annualised volatility. As can be seen, IA UK Equity Income funds have performed the best in this respect but have still left investors nursing losses – albeit ones that are smaller than the FTSE All Share’s fall.
Trojan Income, which has FE Alpha Manager Francis Brooke at the helm alongside Hugo Ure, tops the table. Like all the funds run by Troy Asset Management, capital preservation is at the heart of its strategy.
Square Mile Investment Consulting & Research gives the fund an ‘AA’ rating and said: “The managers view risk as the potential for permanent capital loss and rightly take pride in this strategy's capacity to provide protection in more volatile periods.
“In the same vein, however, it also has the propensity to lag the market in more aggressive upswings. However, the consistency of returns and protection in down markets should compound into a rewarding investment for investors over time.”