December 28, 2022

Searching for Diamonds in the (Very) Rough

by Dewi John.

Using the Lipper Leaders scoring system to analyse the best performing funds in the IA UK All Companies sector.


UK All Companies is, obviously, an important sector for UK investors—but one that is increasingly unfashionable.

There’s been a long-term move away from domestic to global equity funds. For example, the largest outflows from Lipper’s Equity UK and Equity UK Income classifications were during COVID (£15.9bn in 2020). Prior to this, the largest redemptions were in 2016 (£10.3bn). These are troughs in a decades-long trend, however.

Conversely, global funds have been increasing relative to domestic equity holdings. In 2003, Equity Global and Equity Global Income funds combined stood at 17.7% of total UK and global equity assets. By 2021, global funds were 50.3% of UK and global equity assets combined.

While this is essentially a long-term shift away from overweights to domestic equities, those that have done this have benefitted. The IA Global sector is down 24% over 12 months to the end of October, though it has still delivered 11.6% over three years. The UK All Companies sector figures for the same periods are -26.6% and -10.8%, respectively.

When we looked at the sector a year ago, only six funds out of 222 were in negative territory for the period. Some 105 out of 230 are in the red today, indicating it’s been a hard grind for UK equity investors.


Struggling with the wind

That’s interesting because the UK is a value-biased market (with value outperforming growth significantly over the first half of the year), plus it is overweight the key area of the market that has outperformed this year: oil and gas. Yet UK All Companies funds have struggled to keep up with their global peers over a year that should, in theory, have relatively benefitted them.

What’s also interesting is that, despite it being an appalling year for small caps in general (the UK Smaller Companies sector is down 41% over 12 months), four of the funds in the table below have a small- and mid-cap bias. This goes to show that funds are not indices, and good managers can find opportunities in the worst markets.

For example, the top-returning fund over three years is the VT Sorbus Vector, which Lipper classifies as a small- and mid-cap fund with a bias to growth stocks. Yet despite these two headwinds, it has still returned 29% over three years. And, while it’s down over 12 months and even more year to date, it is less so than both the IA sector, and the average UK small- and mid-cap fund, as calculated by Lipper. What’s more, it seems to have done this without any exposure to energy stocks, which have led the market for much of the year. At times, it’s carried hefty cash weightings (up to 17% of the portfolio) that will have helped dampen the downside. Of course, this will also do the same in market rises, but tactical use of cash seems to have worked well for the manager over this period.

It’s a small fund, like the second-placed Slater Artorius and seventh-placed Consistent Opportunities Unit Trust, which may keep it off the radar of many advisors, wealth managers, and funds of funds, but individual investors generally aren’t investing the quanta of these groups. And small and nimble seems to be working for them in this market.


Table 1: Top-Performing UK All Companies Funds Over Three Years (with a minimum five-year history)

All data as of October 30 2022; Calculations in GBP

Source: Refinitiv Lipper


This article first appeared in the November issue of Moneyfacts, page 25.


Refinitiv Lipper delivers data on more than 360,000 collective investments in 113 countries. Find out more.


The views expressed are the views of the author and not necessarily those of Refinitiv. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. Refinitiv cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. Please consult with a qualified professional for financial advice.

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