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The UK managers that beat the All Share when the market flipped

29 January 2015

2008, 2009, 2013 and 2014 all presented investors with different opportunities and challenges, but some funds managed to beat the FTSE All Share in every one of these years.

By Gary Jackson,

News Editor, FE Trustnet

Seven funds from the two main UK equity sectors have managed to beat the FTSE All Share in each of the vastly different years of 2008, 2009, 2013 and 2014, research by FE Analytics shows, suggesting their managers have a proven ability to navigate changing market conditions.

Each of the years mentioned above provided investors with different challenges and opportunities: in 2008 stock markets across the world tumbled in the wake of the global financial crisis; in 2009 they rebounded strongly after bottoming out from the previous year’s crash; in 2013 stocks had a final spurt of a bull run; and in 2014 the All Share moved sideways on the back of numerous factors.

Focusing on UK stocks, we can see that the FTSE All Share plummeted 29.93 per cent in 2007 then went on to surge 30.12 per cent in the following year. In 2013 the index rose 20.81 per cent before struggling to make its 1.18 per cent return by the end of 2014.

Performance of indices since 1 Jan 2008

      

Source: FE Analytics

As the graph above shows, the trend has been broadly the same across world equities as many of the tail and headwinds, such as ultra-loose monetary policy, investor averse to key sectors like banks and miners, and geo-political tensions in flash points such as the Middle East, are global in nature.

When we screened the IA UK All Companies and UK Equity Income sectors to see how many funds beat the All Share in each of the four years, our data showed only seven have achieved this feat - and what’s more, they were run by just five management teams.

Adrian Lowcock, head of investing at AXA Wealth, said: “It is well worth reviewing a manager’s performance to check what they do when they lag or even beat a market. A good manager should only be tweaking their approach not changing it radically and have the conviction to ride out bad performance and not get carried away by good performance.”

Funds that outperformed in different market conditions


2008 2009 2013 2014
CF Lindsell Train UK Equity -25.76% 48.64% 36.38% 5.33%
Majedie UK Focus -24.31% 40.55% 34.14% 7.35%
Schroder Recovery -27.11% 49.18% 45.26% 1.60%
Majedie UK Equity -20.34% 31.44% 28.80% 1.81%
JOHCM UK Growth -23.34% 48.64% 36.38% 5.33%
Schroder Income -23.28% 35.87% 32.53% 4.13%
Liontrust Macro Equity Income -26.37% 30.56% 29.44% 2.90%
FTSE All Share -29.93% 30.12% 20.81% 1.18%

Source: FE Analytics


The fund that has made the highest return since the start of 2008 is FE Alpha Manager Nick Train’s £1.2bn CF Lindsell Train UK Equity fund, which is up 146.67 per cent. As a point of comparison, the average IA UK All Companies was up 46.12 per cent while the FTSE All Share rose 43.12 per cent.

Regular readers will recognise that the five FE Crown-rated fund is frequently flagged up as a consistent outperformer, thanks to Train’s ultra-long-term approach and very concentrated portfolio, which rarely sees new holdings added or positions dropped.

Since 1 Jan 2008, the fund has been fourth best performer in its sector but has achieved this with less volatility and a lower maximum drawdown - which shows how much an investor would have lost if they bought and sold at the worst possible time - than its average peer.

CF Lindsell Train UK Equity has a clean ongoing charges figure (OCF) of 0.77 per cent, with a 1.88 per cent yield. It also appears on the FE Research team’s Select 100 list of preferred funds.

Majedie Asset Management has two funds on the list - the £3bn Majedie UK Equity and £510m Majedie UK Focus funds.

Since the start of 2008 and the end of 2014, the five FE Crown-rated Majedie UK Focus fund made a 114.72 per cent total return while Majedie UK Equity, which holds four crowns, is up 98.85 per cent.

Performance of funds vs index since 1 Jan 2008



Source: FE Analytics

Majedie is built around the philosophy that markets are inherently inefficient and true active managers can deliver superior returns to their investors by exploiting these. The group has a flexible investment approach that does not favour any particular investment style.

The two UK funds split their portfolio into four parts and these are run on an individual basis. For Majedie UK Equity, de Uphaugh, Chris Field and Matthew Smith each manage around 30 per cent of assets and look at the FTSE 350, while Parker and Staveley run a small-cap portfolio of about 10 per cent of the fund. Majedie UK Focus is managed by Chris Field, James de Uphaugh, Matthew Smith and FE Alpha Manager Chris Reid.

This approach means that the funds can look different to the ‘typical’ UK equity portfolio. For example Majedie UK Focus, which is the more concentrated portfolio of the two, counts Marks & Spencer Group, Orange and Man Group as top 10 holdings.

Majedie UK Focus and Majedie UK Equity respectively have a 1.53 per cent and a 0.78 per cent clean OCF.

Schroders is another fund group with two funds on the list. Schroder Recovery and Schroder Income are managed by Kevin Murphy and Nick Kirrage, who are part of the asset management house’s UK value investing team.

Schroder Recovery, which invests in companies that have suffered a severe setback but have the prospect for positive change, returned 106.73 per cent between 2007 and 2014, while the dividend-focused Schroder Income is up 80.70 per cent.

Performance of funds vs index since 1 Jan 2008



Source: FE Analytics


The fact that these value funds have outperformed in each of the four different years is interesting, as the style is prone to underperformance over shorter time frames but tends to win out over the long term. Indeed, during the eurozone crisis year of 2011, both funds were fourth quartile in their respective sectors.

Square Mile, which gives both funds an ‘A’ rating, said: “When markets are low and falling, the managers are likely to be more aggressively positioned as they see such short-term volatility as an opportunity. This may be painful in the short term for investors but these times may mark the periods when the strategy has the greatest opportunities ahead of it.”

The four crown-rated Schroder Recovery fund has a clean OCF of 0.92 per cent while Schroder Income, which has five crowns, has ongoing charges of 0.91 per cent and yields 3.31 per cent.

FE Alpha Manager Mark Costar has also shown an ability to beat the FTSE All Share in differing market conditions on his JOHCM UK Growth fund. Between the start of 2007 and the close of 2014, it had made 82.72 per cent.

Costar looks for undiscovered growth opportunities that are being mispriced by the market, with a focus on businesses that generate high levels of cash that can be used fund expansion, have strong management and are not reliant on external factors, such as commodity prices, for their success.

This approach means that this is another fund that can underperform in the short term; indeed, it was fourth quartile in 2011. Analysts point out that the fund can be far from smooth - since launch in November 2011 it is ninth decile for annualised volatility - and periods of sharp returns followed by underperformance can be expected.

However, it is well respected for its long-term showing and holds five FE Crown as well as an ‘A’ rating from Square Mile. The fund has a 0.84 per cent clean OCF. 

The final fund that beat the All Share in 2008, 2009, 2013 and 2014 is Liontrust Macro Equity Income, which is headed by the FE Alpha Manager duo of Jan Luthman and Stephen Bailey. It made 60.30 per cent over the seven years covered by the study, which is the lowest of the funds looked at here but 15 percentage points ahead of the index.

Despite being in the IA UK Equity Income sector, the fund does not concentrate on typical dividend-paying stocks and looks across the market-cap spectrum. He has less than 40 per cent in the FTSE 100, has more than one-quarter of assets in mid-caps and close to 19 per cent in international companies.

The fund appears on the FE Select 100 and the FE Research said: “The best way to look at the fund is over a long period: the themes that the managers identify are meant to change society, which takes a long time. The managers do not focus on short-term losses because they are confident they can be recovered.”

Liontrust Macro Equity Income has a clean OCF of 0.90 per cent and currently yields 4.16 per cent.

Performance of funds vs index since 1 Jan 2008



Source: FE Analytics

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.