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Professional fund pickers boost research into UK and Fundsmith during April

01 May 2019

With the UK’s exit from the EU being delayed, investors have been researching UK equity funds more on FE Analytics, while Fundsmith Equity became even more popular.

By Gary Jackson,

Editor, FE Trustnet

UK equity funds have been overlooked by many investors in the years since the Brexit referendum but there have been some signs that interest is being revived towards the domestic market.

The past three years have seen the IA UK All Companies sector suffer sustained outflows amid uncertainty over the timing of the country’s departure from the EU and the nature of any deal that comes with it – or not.

Against this backdrop, positioning data such as the Bank of America Merrill Lynch Global Fund Manager Survey shows that UK equities have been a consensus underweight for several years. In addition, the amount of research into IA UK All Companies funds carried out on FE Analytics has been consistently declining.

Sector research change between Apr 2019 and previous 12 months

 

Source: FE Analytics Market Intel Tool

However, when we compare what proportion of FE Analytics research into Investment Association funds went into the IA UK All Companies sector during April 2019 and the previous 12 months, we see that there has been an uptick for the peer group. This bucks the trend seen in much of the recent past as the sector has been losing research share in each month.

April was an eventful month in the Brexit negotiations. The UK was supposed to leave the EU on 12 April (which was itself an extension from the original departure date of 29 March) but failed to reach any consensus on how it would do this; another extension to 31 October has been granted, although an earlier departure is possible if a deal is agreed before this date.

The delay seems to have caused fund pickers to spend more time researching funds in the IA UK All Companies sector, although this could be because they are considering further selling amid the delay rather than adding to the UK on relative valuation grounds.


Looking at the UK funds that witnessed the biggest uptick in FE Analytics during April shows a greater interest in passive offerings (Vanguard FTSE U.K. All Share Index, Fidelity Index UK, HSBC FTSE 100 Index) and dedicated stockpickers (CFP SDL UK Buffettology, Liontrust Special Situations, LF Lindsell Train UK Equity).

Two more fund sectors did see a greater increase in their share of research on FE Analytics: IA Global and IA Sterling Strategic Bond.

Interest in global funds has been growing for some time: the sector is one of the biggest in the Investment Association universe and is home to some of the industry’s best-known fund managers.

The IA Sterling Strategic Bond peer group, on the other hand, is being researched more as fund pickers look for flexible portfolios that have the ability to navigate fixed income markets against a backdrop of changing central bank policy.

 

Source: FE Analytics Market Intel Tool

Of the individual funds that witnessed the biggest increase in their share of research, it’s a global fund that comes in first place.

FE Alpha Manager Terry Smith’s £17bn Fundsmith Equity fund is consistently the most heavily researched fund on FE Analytics but April was yet another month when it grew more dominant.

Over the 12 months to the end of March 2019, the fund accounted for 0.45 per cent of research traffic (the percentages are small because of the sheer number of funds in the Investment Association). This grew to 0.56 per cent in April 2019.


Fundsmith Equity, which focuses on quality-growth stocks where growth is driven from reinvestment of cashflows, is top-decile in the IA Global sector over one, three and five years as well as over shorter time frames.

The FE Invest team, which has the fund on its Approved List, said: “We believe investors should be aware of Smith’s specific investment philosophy before investing – the fund is not a typical global equity fund and could behave very differently from the rest of the market. The areas the fund is invested in have been in high demand since the financial crisis, which is why the fund has returned so much in absolute terms.”

Lindsell Train Global Equity, which has a similarly strong track record and is another fund that focuses on quality-growth investing, also benefitted from more research in April.

Baillie Gifford Global DiscoveryLiontrust Sustainable Future Global Growth and Jupiter Ecology are other global equities offerings that got more attention.

But the table above also shows the continued rise of passives. Vanguard LifeStrategy 60% Equity (and another three members of the LifeStrategy range), iShares Global Property Securities Equity Index (UK), L&G All Stocks Index Linked Gilt Index Trust, Vanguard FTSE U.K. All Share Index and Vanguard FTSE Developed World ex-UK Equity Index are some of the trackers proving more popular last month.

 

Source: FE Analytics Market Intel Tool

The fund with the largest fall in research share is Fidelity Special Situations, but this comes after a high level of interest in the latter half of 2018.

Aberdeen Standard Investments had another month where less research was being carried out into its funds, with seven products making the list of the 15 with biggest falls in interest.

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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.