Invesco Perpetual Distribution, EdenTree UK Equity Growth and Marlborough Extra Income are some of the funds that have regained their place in the top quartile of the sector this year after a challenging 2016. 
As has been discussed on many occasions, events such as the UK’s vote to leave the European Union and the election of Donald Trump as US president took many investors by surprise last year and left a number of funds lagging the index.
One consequence of this was that a number of funds that had previously been at the top of their peer group fell to the bottom, while those that had been struggling in previous years jumped to the top.
Given that some of the factors leading to this appear to have eased – such as the value style taking market leadership from growth – we ran the numbers to find which funds had bounced back from a difficult 2016.
To do this, we filtered the entire Investment Association universe to find out which funds were in their sector’s bottom quartile in 2016 but the top quartile during each of 2015, 2014 and 2013. We then looked for those that have returned to the top quartile in 2017-to-date and were left with five, which we will take a closer look at below.
Invesco Perpetual Distribution
First up is the £3bn Invesco Perpetual Distribution fund, which is managed by Paul Causer, Paul Read and Ciaran Mallon. It resides in the IA Mixed Investment 20-60% Shares sector and aims for a combination of income and capital growth over the medium to long term.
The fund made a 5.52 per cent total return in 2016, ranking it 129th out of its 141 peers. This followed a top-quartile 0.1 per cent in 2015, 18.33 per cent in 2014 and 13.7 per cent in 2013; the fund is back in the top quartile this year after making 6.13 per cent, so far.
Performance of fund vs sector since 1 Jan 2013
Source: FE Analytics
Causer, Read and Mallon run the portfolio with the view that markets are mostly efficient but inefficiencies do exist that investors can exploit. This means their fundamental analysis puts a strong emphasis on valuations and weighs up the potential risk versus potential return across bond and equity markets.
During 2016, the managers’ cautious stance meant the portfolio was underweight interest rate duration, which hampered returns as longer-dated government bonds had a relatively strong year.
Square Mile Investment Consulting & Research, which gives the fund an ‘AA’ rating, said: “The fund is likely to be suitable for investors who wish to access a relatively high income stream, with the potential for some possible capital upside, and who are prepared to hold the fund for medium to long periods (at least three years).”
Invesco Perpetual Distribution has an ongoing charges figure (OCF) of 0.82 per cent and is yielding 4.31 per cent.
Marlborough Extra Income
This £56.5m fund has made 9.3 per cent over the year-to-date, ranking it 14th out of the IA Mixed Investment 40-85% Shares sector’s 148 funds. In 2016 it made 6.64 per cent, but was among the best highest returners in each of the preceding three years.
Marlborough Extra Income, which is managed Matthew Rainbird, Nigel Beidas and Andrew Moffat, aims to generate increasing income and growth through high yielding shares, corporate loan stocks and preference shares.
The fund’s underperformance in 2016 was down to its underweight in the oil and mining sectors, which rallied hard on the back of recovering commodity prices and expectations of higher inflation.
Performance of fund vs sector since 1 Jan 2013
Source: FE Analytics
More recently, however, its performance has been supported by strong returns from some small- and mid-cap holdings, including brick-making business Ibstock, Bargain Booze owner Conviviality and environmental consultancy RPS.
The portfolio remains underweight oil & gas and basic materials with respective allocations of 3.1 per cent and 3.3 per cent; its largest sector exposures are to industrials at 16.8 per cent, financials at 14.7 per cent and consumer goods at 11 per cent.
Marlborough Extra Income has a 0.88 per cent OCF and is yielding 3.93 per cent.
Consistent Practical Investment
Next up is FE Alpha Manager Sean Ashfield’s £45.4m Consistent Practical Investment fund, which has returned 11.72 per cent in 2017 so far; this makes it the second-best performer in the IA Mixed Investment 40-85% Shares sector.
Performance of fund vs sector and index since 1 Jan 2013
Source: FE Analytics
Last year it was up by 10.21 per cent, which placed it in the bottom quartile. However, it was in the peer group’s fifth place in 2015, first place in 2014 and second place in 2013.
The fund is built around a portfolio of investment trusts, with its latest factsheet showing the largest holdings as London & St Lawrence Investment Company, The Merchants Trust, Aberforth Geared Income Trust, Temple Bar Investment Trust and Dunedin Income Growth Investment Trust.
Consistent Practical Investment has a 1.16 per cent OCF and is yielding 3.14 per cent.
EdenTree UK Equity Growth
This £173.4m fund, which is managed by Philip Harris and Ketan Patel, is up by 13.34 per cent over the year-to-date, putting it in the IA UK All Companies sector’s top quartile. This follows a return of just 2.43 per cent in 2016.
EdenTree UK Equity Growth invests across the market cap spectrum; it currently has 41.1 per cent of the portfolio in small caps with another 31.75 per cent in mid caps.
This small- and mid-cap exposure would have made conditions difficult for the fund last year, as it was this part of the market that bore the brunt of investors’ concerns about the UK’s decision to quit the EU. However, they have rebounded this year as confidence in the domestic economy return.
Performance of fund vs sector and index since 1 Jan 2013
Source: FE Analytics
In a recent update, the managers said: “While, as ever, some political and economic risks lie ahead, we remain focused on finding new opportunities in companies that meet our strict criteria of strong earnings growth, high margins and strong cash flows.”
The portfolio also had an underweight to oil & gas and basic materials, which would have been painful in 2016 but more helpful this year as commodity prices faced renewed challenges.
EdenTree UK Equity Growth has an OCF of 0.79 per cent and yields 1.95 per cent.
GAM Multistock Health Innovation Equity
This $215.6m fund invests in “innovation-driven” companies in all healthcare subsectors, including pharmaceuticals, biotechnology, healthcare services & supplies, medical technology, specialty pharmaceuticals and generics. It is managed by Christophe Eggmann and resides in the IA North America sector.
GAM Multistock Health Innovation Equity has made 14.26 per cent over 2017 to date, ranking it sixth in the peer group. This followed a 2.04 per cent loss in 2016, the worst performance in the sector, but it was the highest returner of the peer group in each of the previous three years.
Performance of fund vs sector since 1 Jan 2013
Source: FE Analytics
The fund’s 2016 underperformance comes down to the fact that US healthcare had tough time that year, after high prices became a campaign issue in the run-up to the US presidential election and some firms’ earnings disappointed.
The S&P 500 Health Care index was up 15.47 per cent last year, less than half the 32.67 per cent gain in the S&P 500. Health stocks had been significantly ahead of the wider index in each of the three previous years and are outperforming by a wide margin again in 2017.
GAM Multistock Health Innovation Equity has a 1.81 per cent OCF.