Square Mile has ejected a pair of Aberdeen Standard Investments UK equity funds, with £1.2bn between them, from its Academy of Funds after losing faith in their ability to turn performance around.
Tom Moore’s (pictured) £800m ASI UK Income Unconstrained Equity fund and the £370.9m UK Unconstrained Equity fund, run by Wesley McCoy and Lesley Duncan, were stripped of their A ratings in Square Mile’s January ratings round-up.
Both funds have landed in the bottom quartile of their respective IA sectors over three and five years.
Of the pair, Moore’s fund has particularly struggled, losing investors 17.4% and 1.7% on a three- and five-year view, while the average fund in the IA UK Equity Income sector has returned –1.4% and 23.5% respectively, according to Trustnet.
However, both funds have seen performance pick up in the near term, with ASI UK Income Unconstrained Equity up 22.1% in the last six months versus the sector’s gains of 16.8% and ASI UK Unconstrained Equity spiking 47.3% compared to the IA UK All Companies’ 18.4% gains.
Though Square Mile acknowledged there had been “some signs of improvement” it said “the performance challenges both strategies have faced over the medium term are such that Square Mile has lost conviction in their respective managers’ ability to consistently meet their long-term performance aspirations”.
Unconstrained mandates seem risky amid current disruption
Willis Owen head of personal investing Adrian Lowcock said he could understand Square Mile’s position given the funds’ riskier unconstrained mandates and the current disruption in markets. “I would want to see a bit more of how each fund performs as things recover.”
Lowcock said ASI UK Income Unconstrained Equity’s performance had been hampered by the team getting some calls wrong around the Brexit vote and its value tilt.
“The small and mid-cap exposure which typically adds value has tended to weigh on the portfolio when wider macroeconomic events dominate markets,” Lowcock said.
“The unconstrained nature of this fund does mean you would expect greater volatility in performance, but to accompany that you need to see superior returns, which haven’t materialised in recent years.”
Lowcock said ASI UK Unconstrained had struggled to regain its footing since the departure of Ed Legget, despite McCoy having previously managed the strategy.
“It is one of the riskier UK equity funds in ASI stables because of its unconstrained mandate although the pragmatic style should mean the fund performs throughout the cycle,” he said.
“The fact the team use the ASI’s ‘Focus on Change’ philosophy and the internal stock screen matrix means that the fund should be able to address the underperformance and indeed performance has begun to improve in the last few months.”
