UK equity funds that consistently beat benchmarks
As investors consider where to allocate their stocks and shares ISAs, FE has singled out a range of UK equity funds that have beaten their benchmarks in each of the past three calendar years. Several of these funds are run by FE Alpha Managers, the top 10% of managers of OEICs and unit trusts in terms of alpha generation, consistency and volatility, based on performance since 1 January 2000.
FE's top pick among UK equity funds is Liontrust Special Situations, which beat the FTSE All Share by 11% in 2009 and 2011 and by an impressive 21.6% in 2010. It is managed by Anthony Cross and Julian Fosh, both FE Alpha Managers.
Rob Gleeson, Head of Research at FE, explained: "Liontrust Special Situations proved its mettle during last year's turbulent markets. The FTSE All Share fell by 3.46% in 2011 but Liontrust Special Situations preserved capital and returned an impressive 7.54%. Beating benchmarks year in, year out as this fund has done is no mean feat. Numerous studies have documented how difficult it is for active managers to outstrip market indices and that those who outperform in one calendar year may not do so the next."
Mark Slater's MFM Slater Growth has also comfortably beaten the FTSE All Share in each of the past three years. Its 2010 performance in particular stands out: the fund rose by 76.68%.
The best performing UK small-cap funds achieved a wider margin of outperformance than their large or all-cap counterparts. Paul Marriage's Cazenove UK Smaller Companies fund beat the FTSE Small Cap ex IT index by more than 14% in each of the past three years. Performing strongly in both bull and bear markets. In 2009, the index rose 57.67%, which Mr. Marriage beat handsomely to return 71.98%. Last year, the benchmark plummeted, losing 15.16%. Cazenove UK Smaller Companies remained in positive territory, up 1.21%.
Giles Hargreaves' Marlborough Special Situations and Marlborough UK Micro Cap Growth funds both beat the Morningstar UK Smaller Companies Index for the past three years. In particular, his micro-cap fund beat its benchmark by 11.21% last year, preserving capital with a 2.17% return against benchmark losses of -9.04%.
Rob Gleeson, Head of Research at FE, concluded: "Obviously returns in one year may have no bearing on performance the next, but investors can give their ISAs the best chance of success by entrusting them to managers who have consistently outperformed year in, year out. The last three years is an interesting period to measure because it comprised both bull and bear markets, so managers who excelled every year have proved their ability to weather storms. Capturing the upside and protecting against downside shocks is, after all, the Holy Grail of investment."