A decade ago, in June 2007, the FTSE 100 reached 6,732. This was to be the peak level before the global financial crisis destroyed value for shareholders across the world. Fast forward, 10 years later and today it is trading at 7,570, up 12% from the level a decade ago.
FTSE 250, the index that tracks the 101st to the 250th largest companies listed on the London Stock Exchange, is up nearly 70% to 20,026 today while FTSE small-cap index is up around 40% to 5,664.
But these rallies have hardly been smooth sailing. Along the way there have been significant bumps in the road – by March 2008 the FTSE 100 had bottomed out at 3,531, losing 48% of its value.
How have UK equity fund managers navigated this volatility and recovered from the crisis? We look at top performers during over the last decade, and we found that UK equity funds with a small and mid-cap focus performed best over the past 10 years.
Data from Morningstar Direct showed that there are 1,225 funds investing in UK-listed companies – with significant variations in their fortunes. Below we look at the three funds that top the chart for annualised return over the last decade from the large cap, flex cap and UK equity income categories.
It is worth noting that two of the three top performing funds over a 10-year period have a bias towards small and mid-cap equities. Many funds within these two sectors topped the best performance chart over a 10 year period. The Silver Rated Old Mutual UK Mid Cap, Marlborough UK Micro Cap Growth and the Bronze Rated River & Mercantile UK Equity Small Companies all have 13% annualised returns over a 10-year period.
MFM Slater Growth
The MFM Slater Growth fund has annualised returns of 13.5% over a 10-year period, making it the best performing fund since the FTSE 100 high a decade ago.
The fund is managed by Mark Slater who is CIO, chairman, and co-founder of Slater Investments. The fund is Bronze Rated by Morningstar analysts.
Samuel Meakin, Morningstar fund analyst said that Mark Slater and his team are highly experienced, with a long and varied range of backgrounds.
“The process is focused on finding companies with strong competitive positions, alongside sturdy balance sheets, good free cash flow generation, and a high rate of conversion of profits into cash,” said Meakin.
There was a mandate change in October 2009 to an unconstrained, growth-orientated approach by the fund manager, which has led the fund to have most of its exposure in small- and mid-cap stocks. Since then, the fund has produced very strong cumulative returns, said Meakin.
“Investors should be aware that the portfolio contains several large active positions in small-cap stocks where the manager has high conviction, and that the performance of this small number of names may lead the fund's performance to diverge meaningfully from that of the index and category average,” said Meakin.
Looking at recent performance, the MFM Slater Growth fund did not have a good year in 2016, losing 2.4%. However, prior to 2016, the fund delivered positive gains every single year, except the year of 2008 financial crisis.
CF Lindsell Train UK Equity
The CF Lindsell Train UK Equity fund is managed by Nick Train, “a seasoned and talented UK equity manager who has demonstrated a consistent approach”, said Morningstar fund analyst Simon Dorricott. The fund has a 12% annualised return over a 10-year period.
“Train's process is differentiated and has proved successful over a number of market cycles. He looks for unique and high-quality companies that offer a high and sustainable return on equity and low capital intensity and are cash-generative,” said Dorricott.
This process has led to strong absolute returns and, given the strategy has clear biases and risks, unusually consistent relative returns over the medium to longer term.
Train’s emphasis on quality companies has led to particularly strong performance in weaker markets, as evidenced by the fund’s strong outperformance in years such as 2008 and 2011 when it protected capital better than most, said Dorricott. Recent performance remained strong, as the fund gained 11.5% and 11.3% in 2015 and 2016. The fund has a Morningstar analyst rating of Gold.
Liontrust Special Situations
In third place is Liontrust Special Situations, a Morningstar analyst Bronze Rated fund, with a 11.7% annualised return over a 10-year period. The fund has been managed by Anthony Cross since 2006. He was joined by Julian Fosh in May 2008.
“The managers’ skill sets complement each other: Fosh brings experience in large-cap UK stocks, while most of Cross’ career has centred on small- and mid-cap stocks,” said Meakin.
The fund invests in a blend of companies across the FTSE All-Share Index, with a bias towards small- and mid-cap stocks. The managers have placed bets on the less capital-intensive businesses, such as support services, technology and media.
The fund helped protect investors’ capital better than peers in weaker market environments such as 2011, but it can sometimes fail to keep up in strong market rallies such as in 2013, Meakin added. Looking at performance in 2015 and 2016, the fund gained 13.6% and 15.5% respectively.
Which Funds Have Lost Your Cash Since 2007?
Only two funds have lost investors’ money over the past 10 years across all the UK-focused sectors. Over a 10-year period the actively managed Aviva Investors UK equity MOM and HSBC GIF UK Equity have annualised returns of -2% and -1.8%.
