Since the EU referendum in June 2016, the UK equity market has struggled to replicate the sort of returns recorded by its international counterparts as Brexit uncertainty has gripped the country.
In his well-known ‘Bloomberg speech’ on 23 January 2013, former prime minister David Cameron announced that he would hold a referendum on EU membership if the Conservative party were to win the next general election in 2015.
When making the pledge, a second coalition government had seemed likely. However, the Conservative party secured a majority, paving the way for a referendum on EU membership.
Although the UK market has made gains over the post-election period, it has lagged its global peers and uncertainty surrounding the process has discouraged many international investors.
As such, FE Trustnet decided to look at how UK equity funds have performed during the process and which strategies and managers have weathered every stage.
For this study we looked at three key periods that have defined the Brexit process to date: 8 May 2015 to 23 June 2016 (Conservative general election victory to EU referendum), 23 June 2016 to 29 March 2017 (EU referendum to Article 50 trigger), and 23 March 2017 to last month-end (negotiation period).
It should also be remembered that the UK held a snap general election in May 2015, resulting in a minority government, which has further clouded the Brexit process.
We have compared funds in the three main UK equity sectors – IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies – with the FTSE All Share index, which represents 98-99 per cent of the UK stock market capitalisation and is a commonly-used benchmark for UK equity investors.
Source: FE Analytics
The table above shows that only one fund was able to outperform the FTSE All Share index in each of the three periods with lower volatility, while three more have outperformed during each of the periods and with lower volatility in two of the periods.
Below, FE Trustnet takes a closer look at each of the four.
Barclays GlobalAccess UK Opportunities
First on the list is the £392.8m Barclays GlobalAccess UK Opportunities fund-of-funds, managed by Ian Aylward and Stephen Peters.
The three FE Crown-rated fund was the only one from the three sectors to have outperformed the FTSE All Share with lower volatility.
Since the 2015 general election to last month-end, it has delivered a 21.32 per cent total return compared with a 16.44 per cent gain for the FTSE All Share index and a 14.78 per cent gain for the average IA UK All Companies peer.
Performance of fund vs sector & benchmark since May 2015
Source: FE Analytics
Launched in 2004, the fund invests in emerging and undiscovered fund managers – an area of the market it believes can deliver the best returns.
As such, the managers are typically benchmark unaware, which the firm believes offers excellent style diversification.
The fund-of-funds is split between three UK equity mandates overseen by boutique managers JO Hambro Capital Management, Lindsell Train and Heronbridge Investment Management.
Both Heronbridge and FE Alpha Manager Alex Savvides’ £1.1bn JOHCM UK Dynamic strategy have a target allocation of 35 per cent, while Lindsell Train makes up the remaining 30 per cent.
The fund has an ongoing charges figure (OCF) of 0.93 per cent.
Slater Recovery
Next on our list is the five FE Crown-rated Slater Recovery fund, overseen by FE Alpha Manager Mark Slater.
Since the 2015 election, the £51.5m fund has delivered a total return of 40 per cent, the second-highest of the five funds and the largest return for an IA UK All Companies fund in our study.
The fund invests in companies trading at low price-to-earnings P/E multiples in relation to their earnings growth, strong cash flow and a strong financial position.
Investment veteran Slater also invests in some recovery situations, shares trading at a discount to asset value, companies with a large amount of cash on the balance sheet that also own promising businesses, and companies offering attractive dividend yields trading at low P/E multiples.
The fund has an OCF of 0.84 per cent.
TB Evenlode Income
The five FE Crown-rated TB Evenlode Income fund is the first of two equity income strategies on our list. The £2.6bn strategy, managed by FE Alpha Manager Hugh Yarrow and deputy manager Ben Peters, targets long-term total returns with an emphasis on income.
Since May 2015 the fund has delivered a 37.04 per cent gain. However, it was the most volatile of the five funds over this period at 12.76 per cent compared with 10.07 per cent for the FTSE All Share index.
Performance of fund vs sector & benchmark since May 2015
Source: FE Analytics
The fund invests across the market cap spectrum. It is a concentrated portfolio of 40 stocks or fewer.
“The fund tends to be less risky than peers, has a low turnover and has more exposure to international businesses,” noted FE Invest analysts. “Expect the fund to trail relatively in cyclically driven markets and to outperform in falling markets.”
TB Evenlode Income has an OCF of 0.9 per cent.
Jupiter Income Trust
The only IA UK Equity Income fund making it into the list is the £2.5bn four FE Crown-rated Jupiter Income Trust, managed by Ben Whitmore.
It targets high income that is increasing at least in line with inflation from a portfolio of UK equities and fixed income, albeit with some overseas exposure.
The fund has a yield of 3.9 per cent and an OCF of 0.94 per cent.