11 May 2020
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Magnificent Seven: UK equity funds
Investment Week looks at the funds that have best weathered the pandemic and how they have differentiated themselves from the blue-chip index.
LF Miton UK Smaller Companies – 6% gain
The only UK equity fund to achieve a positive return since the FTSE 100's peak, the £35m LF Miton UK Smaller Companies fund resides in the IA UK Smaller Companies sector and is benchmark-agnostic.
Managers Gervais Williams (pictured) and Martin Turner will only invest in companies with a market cap below £1bn, with 71.2% of the strategy currently invested in AIM-listed stocks.
The largest holdings within the 51-stock portfolio are cybersecurity firm Kape Technologies and healthcare insourcing company Totally at 5.1% each, followed by streaming services provider Amino Technologies at 3.6%. The fund also has a notable cash weighting at 14.6%.
Ardevora UK Equity – 5% loss
While the £164m Ardevora UK Equity fund resides in the IA UK All Companies sector, it differs from most of its peers in that it is a long/short UK equity fund.
Managers Jeremy Lang and William Pattisson operate a 150/50 long/short model which is based on behavioural biases of company managers, financial analysts and investors, such as hubris from management, overconfidence from analysts and excessive anxiety from investors. They therefore select holdings based purely on stock prices, valuations, company accounts and analyst reports.
Its largest long positions include the London Stock Exchange, publishing company RELX and credit rating company Experian, while its largest shorts include convenience foods producer Greencore, transport company FirstGroup and Hargreaves Lansdown.
John Monaghan, head of research at Square Mile Investment Consulting and Research, said: "The [holds] positions in some stocks that sold off more than the market. For example, the mining company, Glencore, is down 40% year to date, so the short in that company would have been beneficial to relative returns."
The fund is benchmarked against the MSCI UK Investable Market index.
MFM Bowland – 9.3% loss
Also a highly differentiated member of the IA UK All Companies sector, the £17.4m MFM Bowland fund will invest at least 70% of its portfolio in global stocks across the cap spectrum, although there will "normally be a bias towards the UK”, according to its KIID document.
It is also able to invest in bonds, warrants, preference shares, convertible bonds, unquoted companies, investment trusts and other funds.
Square Mile ICR's Monaghan said: "The latest factsheet I can find states a cash position of approximately 15%, which would have helped relative returns as the market fell." The fund, which is benchmarked against the IA Flexible Investment sector, is managed by Hargreaves Hales' investment team.
It should be noted that, while it is open to retail investors, there is a £10,000 minimum investment and a 7% initial charge.
FP Octopus UK Micro Cap Growth – 9.4% loss
The £28.6m FP Octopus UK Micro Cap Growth fund, which is benchmarked against the Numis Smaller Companies plus AIM ex IT index, currently has a portfolio of 56 holdings with a quality growth bias.
Managers Richard Power (pictured), Chris McVey and Dominic Weller explained in their latest factsheet that, ahead of the crisis, the fund had significant exposure to infrastructure and research & development – both sectors that have been bolstered by the UK Government's fiscal response to the pandemic.
It also holds Novacyt, which achieved approval for its Covid-19 test by the World Health Organisation and the US Food & Drug Administration, and CFD trader Plus500, which attracts new customers during periods of volatility.
The fund's cash weighting stands at 10.5%.
LF Miton UK Multi Cap Income – 10% loss
The £756m LF Miton UK Multi Cap Income, which like the aforementioned Miton fund is managed by Gervais Williams and Martin Turner (pictured), has a highly-diversified portfolio of 111 holdings with its top 20 investments accounting for 35.6% of the overall portfolio.
It has a 30.3% weighting in FTSE 100 stocks, 29.1% in AIM stocks, 15.8% in FTSE 250 companies and 11.8% in UK small caps.
It also has a cash weighting of 9.7%.
Royal London Sustainable Leaders Trust – 10.1% loss
Managed by Mike Fox (pictured) since 2003, the £1.5bn Royal London Sustainable Leaders Trust is benchmarked against the FTSE All-Share index, but will only invest in shares that actively make a positive contribution to society so therefore has notable weightings to the healthcare, technology and consumer services sectors.
Individual holdings that have fared particularly well recently, according to the fund's latest factsheet, include Roche and Novo Nordisk as demand for diabetes drugs has "remained resilient".
It has a concentrated portfolio of 41 stocks and just a 1.5% weighting in cash.
Samuel Meakin, senior manager and research analyst at Morningstar, said: "Zero exposure to energy and mining was a tailwind for relative performance. But strong stock selection also shone through across several sectors.
"In general, the strategy's focus on quality and balance sheet strength was helpful as the market looked to companies that would be most able to survive the lockdown.
"The substantial overseas exposure was also helpful as UK equities underperformed global, with sterling weakness exacerbating this.
"Within this, areas like cloud computing, which has been a prominent theme in the portfolio for several years, benefit from the shifts in working patterns we have seen as a result of the crisis."
MFM Techinvest Special Situations – 10.8% loss
This £5.1m fund, which both resides in and is benchmarked against the IA UK Smaller Companies sector, has been managed by Conor McCarthy and Darren Freemantle since 2005.
While there is little up-to-date information available for the vehicle, its largest holdings in October 2019 according to its latest interim report were medical lab specialists BATM Advanced Communications, secure payments solutions provider Eckoh and online gaming content provider GAN.
It also had a "higher than usual” 7.6% cash weighting owing to the managers' "moderately defensive stance".
LF Miton UK Smaller Companies, Ardevora UK Equity and MFM Bowland are among the seven UK equity funds in the Investment Association (IA) universe to have achieved less than half the losses suffered by the FTSE 100 index since its year-to-date peak on 17 January, research from PA's sister magazine Investment Week and data from FE fundinfo shows.
LF Miton UK Smaller Companies, Ardevora UK Equity and MFM Bowland are among the seven UK equity funds in the Investment Association (IA) universe to have achieved less than half the losses suffered by...
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