Star managers such as Neil Woodford, Invesco Perpetual’s Mark Barnett and AXA Investment Managers’ Nigel Thomas run some of the largest UK equity funds in the industry but have just gone through a challenging year and are now sitting at the bottom of their peer groups.
Research by FE Trustnet shows that just under 9 per cent of the Investment Association funds with assets under management of more than £1bn made bottom decile returns during 2017, with just under 19.8 per cent being in their peer group’s fourth quartile. This means that giant funds as a whole have actually performed slightly better than would be expected.
Underperforming giant funds have not only been seen in the IA UK All Companies and IA UK Equity Income sectors. Outside of the UK equity sectors, names such as Troy Asset Management’s Sebastian Lyon, Janus Henderson’s John Bennett and M&G’s Jim Leaviss have also found themselves in their peer group’s bottom quartile.
The below table shows all the funds with assets under management (AUM) of more than £1bn that were in their sector’s bottom decile last year, ranked in order of size.
Source: FE Analytics
The largest fund on the list – Carmignac Patrimoine, headed up by Edouard Carmignac and Rose Ouahba – resides in the IA Flexible Investment sector and is managed with a capital-preservation approach. Up to half of the multi-asset portfolio can be held in equities and this allocation replicates the group’s flagship Carmignac Investissement global equity fund.
At the moment, Carmignac Patrimoine has almost 50 per cent of its portfolio in equities but the Carmignac Investissement strategy, which is also run by Edouard Carmignac, is undergoing a period of lacklustre returns; it is in the IA Global sector’s bottom quartile over one, three, five and 10 years.
While Carmignac Patrimoine has struggled over three and five years as a result, being in the bottom quartile over both periods, it has a strong long-term track record. FE Analytics shows that over 20 years, it has posted a 457.52 per cent total return – making it the highest returner in the IA Flexible Investment sector.
It’s not the only large multi-asset fund in the bottom decile though. Sebastian Lyon’s Troy Trojan and David Ballance and Steve Russell’s LF Ruffer Total Return are at the bottom of their peer groups but haven’t failed on their capital preservation aims and remain in positive territory.
Carmignac Patrimoine remains a relatively off-the-radar offering for the typical UK investor. However, two managers that are household names among UK investors and have just had a poor year are next on the list – Mark Barnett and Neil Woodford.
The underperformance of Woodford’s LF Woodford Equity Income fund, which over the summer of 2017 went from being the best performer of the IA UK Equity Income sector to the bottom of the peer group, has been well-covered.
With treading over the same ground, the portfolio suffered a number of stock-specific issues with the likes of Provident Financial, Allied Minds, AstraZeneca and AA all selling off over a period of months. Barnett’s Invesco Perpetual High Income and Invesco Perpetual Income funds – which used to be managed by Woodford and have a number of holdings in common with LF Woodford Equity Income – was hit by a similar fate.
Commenting on last year’s performance and the outlook for the future, Woodford Investment Management’s Mitchell Fraser-Jones recently said: “Market conditions have been much more challenging for the fund. Performance has been almost the opposite of what we had seen in the first 18 months, with returns from the fund being broadly flat, against the backdrop of a steadily rising market. The road towards long-term outperformance in a volatile asset class is rarely a smooth one, but the extent of the difference in performance characteristics in these two periods has been unusually extreme.
Performance of funds vs sectors and index over 2017
Source: FE Analytics
“We acknowledge that performance has been disappointing recently but we understand the reasons why and are not complacent about the journey ahead. With over 30 years’ investment experience, however, and a tried and tested approach, we are confident that the fund is very well-positioned to deliver the attractive and positive long-term returns going forward, to which investors have become accustomed over a very long period of time.”
Woodford believes that the UK economy is performing much better than its critics maintain and has been increasing the fund’s exposure to “profoundly unloved and undervalued” domestically-focused stocks. Arguing that many parts of the global stock market now exhibit bubble-like characteristics, the manager has been revisiting areas such as banks, housebuilders and real estate that he has avoided for several years but expects to rebound at some point in the future.
These two high-profile managers aren’t the only big names to make tenth-decile total returns in 2017; they are joined by funds such as James de Uphaugh, Chris Field, Matthew Smith and Richard Staveley’s Majedie UK Equity, Francis Brooke’s Trojan Income, Michael Clark’s Fidelity Moneybuilder Dividend and Alastair Mundy’s Investec UK Special Situations.
Those in the fourth quartile, but avoiding the bottom decile, include Nigel Thomas with AXA Framlington UK Select Opportunities, Richard Colwell with Threadneedle UK Equity Income, Nick Kirrage and Kevin Murphy with Schroder Recovery, Steve Davies with Jupiter UK Growth and Carl Stick with Rathbone Income.
Looking outside of UK equities and some large reqional funds made disappointing returns last year with Janus Henderson European Selected Opportunities, Invesco Perpetual European Equity, Newton Asian Income, Legg Mason ClearBridge US Aggressive Growth and Man GLG Japan Core Alpha among those in the bottom decile.
In the IA Global sector, the highest profile fund to find itself in the tenth decile was First State Global Listed Infrastructure, which is headed up by the FE Alpha Manager duo of Peter Meany and Andrew Greenup.
However, only 25 of the 485 funds with assets of more than £1bn posted a loss. The largest fall came from Matthew Smith and Tom Morris’ £1.4bn Majedie Tortoise fund, which was down 10.85 per cent in 2017; the fund is in the IA Unclassified sector and doesn’t receive a decile ranking, which is why it was absent from the table at the start of the article.
Performance of fund in 2017
Source: FE Analytics
The long/short fund aims to achieve positive absolute returns in all market conditions over rolling three-year periods, something which a 10 per cent loss won’t help with. FE Analytics shows Majedie Tortoise has made a total return of just 2.76 per cent over the three years to the end of 2017.
Other loss-making giant funds include BlackRock GF World Energy (down 8.57 per cent last year), Pimco GIS Unconstrained Bond (down 4.48 per cent), M&G Global Macro Bond (down 3.83 per cent), Jupiter Absolute Return (down 2.57 per cent) and Aviva Investors Multi Strategy Target Return (down 2.14 per cent).