Looking at the funds in the categories Newcomers, Largest and Best over Three Years it is interesting to note that among the Newcomers, the funds are all domiciled offshore and are in many cases the mirror equivalents of already successful UK domiciled funds. There is also a strong correlation between the Largest and Best over Three Years highlighting the fact that strong performance does indeed attract strong inflows.
Newcomers
The Threadneedle (Lux) UK Equities fund has a Morningstar OBSR Analyst Rating of Silver and is managed by Simon Brazier. It offers investors a portfolio of UK equities managed using a blend of fundamental bottom-up research with top-down analysis. The fund manager is very mindful of the risk/reward dynamics of the fund in order to provide investors with a consistent return profile that seeks to outperform the benchmark while also limiting the volatility. The manager has a close working relationship with the analyst team upon whom he relies extensively for the on-going generation and research of ideas. The research process incorporates both meetings with company management and a thorough valuation analysis, considering at all times both the upside potential and downside risk of an idea.
The Liontrust GF Special Situations fund is the mirror to their successful UK domiciled Liontrust Special Situations fund which has a Morningstar OBSR Analyst Rating of Bronze. The fund is managed by Anthony Cross and Julian Fosh and they adopt a long-term approach to investing with no sector constraints and build a portfolio which typically has a significant bias to mid- and small-cap companies. The managers identify companies by two criteria which they believe are the key to successful companies. The first criterion is the strength, sustainability and exploitation of a company's intellectual capital. The second, for smaller companies, is how key employees are motivated and retained, with the preference being through direct ownership of the company’s equity. The portfolio tends to reflect the duo’s strength within small-cap investing and this can accentuate the differentiation in its performance profile from the benchmark.
Although only launched in 2012 the Montanaro UK Smaller Companies (MTU) fund builds on the track record of its predecessor the Montanaro UK Focus fund which was launched in June 1999. The fund is managed by David Lindley in close collaboration with Charles Montanaro, the firm’s founder and CIO as well as the wider team of 10 managers and analysts. Lindley seeks the highest-quality, growth-oriented stocks and adopts an investment approach that is used firm-wide. The team screens the pan-European equity universe on size, liquidity, and a number of earnings growth, valuation, and risk metrics. This is followed by company visits to meet with management and a thorough assessment of its suppliers and competitors in a given industry. The aim is to find growing companies in niche areas with strong balance sheets, cash flows, and dividend yields.
Largest Funds
The BlackRock Global Funds United Kingdom fund has a Morningstar OBSR Analyst Rating of Bronze. Nick Little assumed responsibility for the management of this fund in October 2013. Stock selection is the primary driver of returns for this fund and in particular, the manager seeks out catalysts to unlock value in the companies in which he invests. Little has several years of experience in managing benchmark-aware institutional accounts through which he has a robust track record. Whilst having controls in place in terms of relative positioning, there is plenty of scope for this fund to generate added value through stock selection.
The Schroder ISF UK Opportunities fund provides investors with exposure to a portfolio of UK equities invested across the market cap spectrum but with a strong bias to mid-cap names. The fund is managed by Julie Dean, who joined Schroders following their acquisition of Cazenove in 2013.
The investment process is founded on the philosophy that the business cycle has an important impact on future investment returns and thus combines both top-down and bottom-up analysis in order to anticipate changes in the business cycle and their impact on share prices. Dean is a pragmatic investor who is willing to trade the portfolio actively to achieve her objectives. Her flexible approach has worked to good effect through a variety of market conditions.
The JOHCM UK Growth fund has been managed since launch by Mark Costar using a clear and well-executed process that he’s followed throughout his career. He focuses his analysis on what drives a share price and attempts to determine what is already priced in as well as what is yet to be recognised. He seeks companies with solid balance sheets, which have strong cash generation and earnings that can be matched with cash flow (earnings alone are easy to distort). Ultimately he prefers organic growth, believing success can be destroyed through acquisitions. His strict sell discipline whereby he sells stocks that have gone wrong immediately sets him apart as he has shown it to be both stringent and consistent throughout his career.
Best over Three Years
A number of the funds featured in the Largest fund category feature in the Best over Three Years too, including the Schroder ISF UK Opportunities fund and the JOHCM UK Growth fund.
The Invesco UK Equity fund is managed by Martin Walker who joined Invesco Perpetual in 1999. He combines both top-down and bottom-up inputs and adopts a pragmatic, unconstrained, valuation-orientated approach. He is a long-term investor as reflected in the fund’s low turnover and this may from time to time lead to periods of poor relative performance. Stock selection is focused on identifying companies that produce returns above their cost of capital and where the outlook or growth prospects are not reflected in valuations. Walker enjoys considerable freedom in terms of portfolio construction and, while he may be conscious of index weightings at both a sector and stock level, he is in no way constrained by them.
The Ardevora UK Equity fund is run by the management team at Ardevora which includes Jeremy Lang and William Pattisson. Ardevora Asset Management was set up by Jeremy Lang and William Pattison in 2010 and their investment process is grounded in behavioural psychology. In particular they look at the behaviour of analysts, fund managers and company management and attempt to exploit the biases which result from their behaviour.
A version of this article was published in International Adviser magazine
