A hot topic on investors’ minds at the moment is whether the bull run in global equity markets has had its time.
For those who are feeling bullish and think equity markets have some gas left in the tank, FE Trustnet looks at the five high octane equity funds that have reaped the rewards in up markets but have suffered in down markets over the past five years.
In this study we looked at the equity funds that have a five-year r-squared ratio of 0.7 or more, which means that a fund is closely linked to its benchmark.
Next, we filtered those funds that have an upside capture ratio of 120 per cent or more to find those funds that have beaten their benchmark by 20 per cent or more in periods when the benchmark has risen.
We then filtered the funds that have had a five-year downside capture ratio of 120 per cent or more to find funds that fall by 20 per cent or more than the benchmark during periods of negative returns for the benchmark. Please note, all figures are run to the end of June 2018.
The results leave five equity funds that have paid off for investors who have been feeling particularly bullish in the past five years and could be worth keeping an eye on if markets continue to rise. Please note, past performance however is not a guarantee for future returns.
First up are the UK funds and the Standard Life Investments UK Equity Income Unconstrained fund managed by Thomas Moore.
Sitting in the IA UK Equity Income sector, which it is also benchmarked against, the fund has had a five-year upside capture ratio of 132.43 per cent and a downside capture ratio of 121.98 per cent.
It launched in 2007 and aims to provide income and capital growth through investing in UK equities, while allowing for bonds to supplement income. It has a yield of 3.94 per cent.
Over five years, the £1.4bn fund has returned 60.38 per cent and is a top-quartile performer in the IA UK Equity Income sector.
Performance of fund vs sector over 5yrs
Source: FE Analytics
It is important to note that the fund is susceptible to volatility and over the past five years it has had the highest volatility in its sector of 11.72 per cent.
More recently the portfolio has struggled and sits in the bottom quartile for its three-year performance, but is back up to the sector’s second quartile over the past year.
It is concentrated and has 61 holdings, 43 per cent of which sit in the FTSE 250, 36.4 per cent in the FSTE 100, 13.5 per cent in the FTSE Small Cap and 7.1 per cent elsewhere.
The fund has an ongoing charges figure (OCF) of 1.15 per cent.
Also run by Standard Life Investments is the UK Equity High Alpha fund, which has had a five-year upside capture ratio of 131.69 per cent and a downside capture ratio of 122.76 per cent against its benchmark the IA UK All Companies sector.
The fund aims to provide long-term growth with some income and currently has a yield of 3.11 per cent.
Its five-year performance is 62.63 per cent, which puts it in the IA UK All Companies sector’s second quartile, but it is in the bottom quartile for volatility over the period.
The fund invests 51.5 per cent in the FTSE 100, 42.8 per cent in the FTSE 250, 4.5 per cent in the FTSE Small Cap and 1.12 per cent elsewhere.
It has 52 holdings in total, and five of the top 10 also fall into the top 10 holdings of the above-mentioned fund: Rio Tinto, BP, Royal Dutch Shell, GVC Holdings and Aviva.
The fund has recently changed manager, with Frederik Nassauer taking charge in April this year. It in £250m in size and has an OCF of 0.90 per cent.
Performance of funds vs sector over 5yrs
Source: FE Analytics
Another in the IA UK All Companies sector is Invesco Perpetual UK Focus, which is also benchmarked against it.
The portfolio has produced a five-year upside capture ratio of 132.32 per cent and a downside capture ratio of 123.19 per cent.
The fund launched in 2001 and has been managed by Martin Walker since 2013. Over five years it has returned 62.70 per cent, which puts it in the sector’s second quartile and compared to its average sector peer it has high volatility and is in the bottom quartile for this metric over 5 years.
The portfolio is a more-focused iteration of Walker’s UK Growth fund and comprises of 37 stocks, while his UK Growth fund has 57 holdings.
Currently, oil & gas has the highest weighting in the fund of 21.08 per cent, while 15.37 per cent is in financials and 6.40 per cent is in telecoms. Consumer services and industrials are the second and third most invested sectors respectively.
Invesco Perpetual UK Focus has assets under management (AUM) of £194m and an OCF of 0.92 per cent.
Invesco has another fund that has been suitable for bullish investors in the past five years: Invesco Perpetual Japanese Smaller Companies.
It has a five-year upside capture ratio of 139.91 per cent and a downside capture ratio of 123.58 per cent against the IA Japanese Smaller Companies sector, which is the fund’s benchmark.
Over the same period, the fund has returned 143.39 per cent and is in the sector’s top quartile. However, it has been the most volatile fund with a figure of 18.56 per cent.
Run by Osamu Tokuno, who is based in Tokyo and has been at the helm for more than 10 years, recent performance has been strong with a top quartile return over one and three years.
While the fund is currently overweight services and manufacturing, in a recent note to investors the manager said: “We are particularly focused on earnings growth momentum over the next few years, and are prepared to reposition the portfolio aggressively, if necessary.”
Performance of fund vs sector over 5yrs
Source: FE Analytics
Invesco Perpetual Japanese Smaller Companies has an AUM of £90m and an OCF of 0.99 per cent.
The final fund is T. Rowe Price US Large Cap Growth Equity, which sits in the IA North America sector.
It has had a five-year upside capture ratio of 140.28 per cent and a downside capture ratio of 123.94 per cent against the Russell 1000 Growth benchmark.
The fund has returned the best overall performance in the past five years of the five funds with a total return of 175.05 per cent, the sector’s third best. It has also produced top quartile performance over one, three and 10 years.
As with all other funds in this article, the fund has a bottom-quartile volatility figure over five years.
It aims to achieve capital growth through investing in US large-caps and counts some household names such as Amazon, Alphabet, Facebook and Microsoft in its top holdings.
Compared to the Russell 1000 index, the fund is overweight in consumer discretionary, financials, health care and utilities while being underweight consumer staples, energy, industrial & business services, information technology, materials, real estate and telecommunication services.
The fund launched in 2003 but brought Taymour Tamaddon on board as manager in 2017 and has an OCF of 0.81 per cent.