The imminent retirement of Jupiter’s Anthony Nutt, the departure of Mark Lyttleton from BlackRock and Richard Buxton’s defection from Schroders to Old Mutual has left fund investors with plenty to think about during the ISA season. Big names, big personalities, and big funds that account for a sizeable part of many UK investors’ portfolios.
Reputations are well earned, of course, though it’s interesting to note that over the past three years (to beginning of March) the best-performers in the most popular domestic equities sector, UK Equity Income, have tended to be among the smallest, according to Morningstar data.
The billionaires club
Taking into account growth and income on a gross basis, the top ten included just one fund – JOHCM UK Equity Income – with assets of more than £1bn. The best performer over that period was actually Unicorn UK Income, up 91%, with assets barely over £100m. Close behind was an even smaller fund, Chelverton UK Equity Income, which is just £45m in scale.
What these funds both have in common is a bias towards outperforming UK small and mid cap companies – something which would be impossible for the likes of Neil Woodford, who manages some £22bn across his Invesco Perpetual Income and High Income funds, or Adrian Frost with his £5bn Artemis Income Fund.
That’s not to say the big boys should be discounted entirely, but rather we are dealing with very different funds housed within the same category. The biggest holdings for Woodford are AstraZeneca, GlaxoSmithKline and BT. The biggest weights in John McClure’s Unicorn fund are to the less heralded Castings, Brammer and UK Mail Group.
The rally in UK small and mid caps – and their potential to maintain high yields – is unlikely to be as resilient to a prolonged market downturn as, say, the more defensively-minded FTSE 100 healthcare, utilities and tobacco companies which populate the FTSE 100.
The same goes for UK All Companies, where Buxton and co have been beaten over three years by the likes of Neptune UK Mid Cap, Liontrust Special Situations, F&C UK Mid Cap, and Franklin UK Mid Cap. Spot the theme!
It may sound like an obvious conclusion, but it just goes to show that in a stock market as diverse as ours, the funds are going to differ greatly too… and safety-first is not always the best way to play it, no matter if you’re a bull or a bear.