Investors typically wait a few years before backing a new fund or manager in order to give them the chance to gain some experience and prove the mettle before taking the plunge.
Yet, the first three years can be some of the most rewarding for an investor as managers typically have more freedom and work harder to make their reputation rather than live off it.
In this study, FE Trustnet looks at funds that launched in the second half of 2015 and are coming into their three-year track record to see if investors were right to wait or have missed out on returns.
Earlier this year, we detailed those hitting their three-year figure over the first half of 2018.
There were six UK funds launched in the second half of 2015 and so far the results have been decidedly mixed.
The best performing fund of the group has been the £139m JPM UK Equity Plus fund run by Callum Abbot, James Illsley, Nicholas Horne and Anthony Lynch.
It invests in UK stocks but also uses derivatives, giving it a short book. Currently fund is 146 per cent long and 46 per cent short giving it a market neutral stance.
Currently the largest long overweight positions in the portfolio are to financial, industrials, consumer services and consumer goods stocks, although these are also the areas where they are most heavily shorting.
Performance of fund vs sector & benchmark since inception
Source: FE Analytics
Since its launch in September 2015, the fund has returned 27.6 per cent, a top-quartile performer in the IA UK All Companies sector, although it has underperformed the FTSE All Share index by 30 basis points.
JPM UK Equity Plus has a yield of 2.11 per cent and a clean ongoing charges figure (OCF) of 0.9 per cent.
However, that is largely where the good news ends for new funds in the IA UK All Companies sector, with the remaining three all failing to crack the top half of funds since their respective launches.
The next-best is the £25m Threadneedle Ethical UK Equity fund, which is already on its second fund manager – James Thorne – who took over from Matt Evans in 2017.
Run with an ethical mandate, it invests in companies with the best environmental, social & governance (ESG) performance or that produce products that will better society in the future.
Examples of such companies are its top three holdings: drug maker GlaxoSmithKline, multi-national consumer goods brand Unilever and insurance firm Prudential.
Performance of fund vs sector & benchmark since inception
Source: FE Analytics
Since the fund’s launch in October 2015, it has returned 17.14 per cent, less than both the FTSE All Share index and the sector average. It has a yield of 1.5 per cent and an OCF of 0.94 per cent.
GVQ Opportunities is next. The fourth-quartile fund has returned 15.61 per cent since its launch in October 2015, and is also lagging both the sector and index.
Run by FE Alpha Manager Jamie Seaton, the £136m fund aims to use private equity valuation techniques to identify 45 stocks that are being mispriced by the market. It has an OCF of 1 per cent.
In its most recent factsheet, the manager noted: “With ever more money going passive, traditional long-only money is becoming a dwindling force in price discovery.
“With the UK heavily out-of-favour and liquidity thin, while hedge funds are also under pressure, their influence as price setters seems to be very much in the ascendancy. Undoubtedly to us this is contributing to short term volatility. This does not however diminish the fund opportunity; in fact completely to the contrary.”
Last is TM Sanditon UK, which was launched in June 2015 and since then has made a loss of 1.85 per cent.
Run by Julie Dean, the portfolio aims to achieve returned of 2 per cent per year ahead of the FTSE All Share over a rolling three-year period.
The long-only fund is heavily weighted to value defensives with consumer services and goods, healthcare, industrials and telecoms making up the bulk of the portfolio.
Turning to the IA UK Equity Income sector, two funds were launched in the back half of 2015 with very contrasting performance.
The £14m Courtiers UK Equity Income has been a top-quartile performer since its launch in November 2015, returning 24.1 per cent.
This is good enough for 10th in the sector, beating the average peer and the FTSE All Share index, as the below chart shows.
Performance of fund vs sector & benchmark since inception
Source: FE Analytics
Managed by Caroline Shaw and Gary Reynolds the fund is a long-term strategy that invests in UK stocks but can also use derivatives.
It is 52 per cent weighted to small-caps with 29 per cent in mid-caps with 31.5 per cent in consumer cyclicals, 19.5 per cent in financial services and 16.7 per cent in industrials. It has an OCF of 1.5 per cent.
Table of young UK funds
Source: FE Analytics
Conversely, VT Odd Real Income has returned 7.82 per cent since its launch in September 2015 – the fifth-lowest in the sector.
Alex Odd runs the £3m fund with a focus on companies with the capability to consistently generate dividends, even in difficult economic times.
These are typically businesses with strong management teams that have a good track record of returning to shareholders.
Currently it holds a little under a quarter of the portfolio in cash, with industrials and consumer staples the largest sector weightings. The fund has an OCF of 1.94 per cent.