A handful of funds in the three main UK sectors were able to generate top-quartile returns in both 2018 and 2019 – with many of the peer group’s biggest names failing to do so.
Last year, the FTSE All Share made a total return of 19.17 per cent – aided by the December general election and easing concerns around global growth. This sits in stark contrast to the 9.47 per cent loss that hit in 2018.
But which funds were able to make the highest returns of the IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies sectors during both of these different years?
Of the 96 funds that were in the top quartile of the UK equity sectors during 2018, just 13 of these maintained that ranking in 2019. The performance of the fund that made the highest total return over both years can be seen below.
Performance of fund vs sector and index over 2018 and 2019
Source: FE Analytics
The £143.2m Premier UK Growth fund made 29.89 per cent across 2018 and 2019, putting it in first place in the IA UK All Companies sector and ahead of the FTSE All Share by a significant margin. This cumulative return was the result of a 6.84 per cent loss in 2018 (when the market was down 9.47 per cent) and a gain of 39.42 per cent last year.
The fund, which has been run by Benji Dawes and Jon Hudson since the end of 2017, has been relatively strong over much of the past two years but rallied hard in the final quarter of 2019 – as the chart below shows – after the Conservatives’ general election victory boosted sentiment towards the UK stock market.
At the start of 2019, the managers said: “We are told regularly by the media that the UK economy is in dire straits as a result of the political shenanigans in Westminster. Foreign investors have shunned the UK stock market over the past twelve months. As a result the valuations of UK companies are at low levels compared to historic levels.
“It is typically periods of increased uncertainty and naysaying that excess returns are made by those investors willing to look beyond the newspaper headlines. We have already seen some UK companies acquired by foreign companies so far this year.
“We are equity investors with a long-term horizon and a bottom-up focus. It is our strong conviction that the Premier UK Growth fund owns a collection of high-quality companies with the opportunity to exploit large addressable markets. We are not short-term traders. Therefore, whilst we remain extremely optimistic about the future of our companies over the long term, we will not spend time guessing which direction markets will move in the very short term.”
Because of this view, the fund went into 2019’s final quarter with an overweight to UK small- and mid-caps, which had been underperformed amidst Brexit uncertainty but went on to rally stronger when December’s election handed prime minister Boris Johnson a strong majority.
Source: FE Analytics
This trend can also be seen in the some of the other funds that top the above list, such as VT Teviot UK Smaller Companies, ASI UK Mid Cap Equity, Gresham House UK Multi Cap Income and TM Cavendish AIM.
Andrew Bamford and Barney Randle’s £67.1m VT Teviot UK Smaller Companies fund made 28.73 per cent over 2018 and 2019 – which are its first two full calendar years of track record.
The fund’s strong returns have come after a period when the three areas that it focuses on - UK equities, smaller companies and value stocks – have struggled to make progress. Simon Evan-Cook, who owns VT Teviot UK Smaller Companies in his Premier Multi-Asset Global Growth fund, said it is one of his favourite funds at the moment.
“Since launch, the fund has done extremely well and this has been a period when small-cap value really hasn’t done particularly well,” the multi-manager recently told Trustnet.
“This situation has started to change so it will be interesting to see what this fund can do with the wind at its back, rather than in its face. If you get reflation and expansion, then companies that are priced well lowly can re-rate quite significantly with only a little improvement in the outlook.”
Performance of fund vs sector and index over 2018 and 2019
Source: FE Analytics
Many of the 13 funds that made it onto this research’s shortlist are some of the smallest members of their peer groups. Nine of them have assets under management of less than £200m, with the smallest being the £6.9m CFP SDL Free Spirit fund.
The largest on the list, however, is the £1bn Royal London Sustainable Leaders Trust. Oversee by FE fundinfo Alpha Manager Mike Fox, the fund concentrates on companies with strong environmental, social and governance (ESG) qualities, the potential for growth and a relatively undervaluation by the market.
Analysts with FE Investments said: “Fox is a very experienced manager and his track record highlights the benefits of his style – despite several periods of outperformance of cyclical sectors and natural resources companies, the fund continues to beat its peers and the wider market over the long term.”
The other larger funds on the above list of outperformers in 2018 and 2019 are Peter Michaelis and Neil Brown’s £615.2m Liontrust UK Ethical fund and Gerard Callahan’s £541.5m Baillie Gifford UK Equity Alpha fund.