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Using the Lipper Leaders scoring system to analyse the best performing funds in the IA UK All Companies sector.
The top seven funds in the Investment Association UK All Companies sector over three years are all value by approach. Value investing was out of fashion for most of the time following the global financial crisis and has recently been eclipsed by the market’s fascination with the “Magnificent Seven” US mega caps.
Value investing boils down to buying stocks priced below the investor’s assessment of their fair value, then held until (or, safer to say, “if”) the market recognises that value. In short, bargain hunting, while avoiding buying a pig in a poke. Though, in truth, I have no idea what a poke is.
This is an approach that will have paid off over the three years to 31 October 2024, encapsulated in the table below. Not only does FTSE UK Value beat Growth over the period, but it also beats the growth and value indices of Russell 1000 and 2000 (US large and small cap) and the MSCI All Countries World. Although, at the time of calculation (end October), it’s just beating the Russell 1000 Growth by a hair’s breadth. But, still, given where the investment flows are going, you would think anything with a whiff of UK plc would be bumping around the bottom. Of the six options, the worst place to have been would have been US small-cap growth, where you would have lost money.
But indices are not funds. Nor are they fund sectors. Taking a look at the sectoral near-equivalents of these sectors, the North America one-year returns to the end of October were 27.68%, and over three years, 26.48%. For Global, those figures are 21.63% and 12.76%, respectively, and for UK All Companies, 17.62% and 6.68%. On average, therefore you would have been more poorly served on home ground.
Flows to the sectors reflect this unfortunate situation. While North America and Global have raked in the cash over the period, UK All Companies has haemorrhaged £19.1bn over 12 months and £55.6bn over three years. Investors have been voting with their wallets.
What, then, might tempt them back to UK equities? Fund managers of this parish have hawked their wares based on the market’s cheapness. But this has been the refrain for years, and the line is beginning to wear rather thin. Things can, after all, be cheap for a reason—and can get cheaper still.
A more compelling argument I heard recently was that UK underperformance results—at least partially—from selling pressure by British pension funds, regardless of valuation. This could be reversed by corporate takeovers, as buyers swoop to take advantage of these tempting valuations and share buybacks. Both make sense in theory, but as to what degree and when they move the market is a trickier question. But it’s an interesting take.
One should not, of course, overgeneralise on the sector’s performance. The top fund over three years, Ninety One UK Special Situations, is up 34.7% and 37.4% over one and three years. It scores a 5—the highest—for Lipper Consistent Return, as indeed do the other top-ranked value funds on the table. While the Ninety One fund struggled over 2020 to 2022, it’s had strong performance since then, and also in 2019. It takes some high-conviction positions, with top-holding Rolls Royce occasionally running not far off 10% of the portfolio—the stock is about 2.2% of the FTSE 100. As a result, the portfolio looks substantially different than the index, and is more diversified by market cap.
On the other hand, one may go down the passive route, such as with third-placed Invesco FTSE RAFI UK 100, an exchange-traded fund, where the index constituents are weighted using a composite of fundamental factors and rebalanced annually. Unlike the plain vanilla FTSE 100, prices are not determinants of the index weights.
Scrolling to the bottom of the table, ranked by three-year returns, the fund here, while up more than 20% over 12 months, is down almost 34% over the full period. As ever, then, fund selection matters.
Table 1: Top-Performing UK All Companies Funds Over Three Years (with a minimum five-year history)
All data as of October 31, 2024; Calculations in GBP
Source: LSEG Lipper
This article first appeared in the December edition of Moneyfacts, p17
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The views expressed are the views of the author and not necessarily those of LSEG Lipper. This material is provided as market commentary and for educational purposes only and does not constitute investment research or advice. LSEG Lipper 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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