Lindsell Train UK Equity and Liontrust Special Situations were amongst the very few UK equity funds that achieved top-ranked returns over the past five years while also delivering low volatility, according to data from FE Analytics.
Keeping volatility low over the past five years has proven to be a difficult task for the top-performing UK equity funds. Almost half (28 out of 57) funds with top-quartile returns exhibited the highest volatility of their peer group.
There were only five funds out of the 226 in the Investment Association’s UK All Companies sector with a five-year track record that managed to keep volatility low and performance high.
All five funds have an FE fundinfo Crown rating of five, and four of them are run by FE fundinfo Alpha Managers.
Royal London Sustainable Leaders Trust
The £3bn Royal London Sustainable Leaders Trust, run by FE fundinfo Alpha Manager Mike Fox, alongside George Crowdy and Sebastien Beguelin, had the highest returns and lowest volatility of the five funds that featured.
With a total return of 75.4% and an annualised volatility of 11.5%, it also exhibited the highest risk-adjusted returns of the funds - as measured by its Sharpe Ratio of 1.0.
The fund invests in companies that are deemed to be making a positive contribution to society, something that has boomed in popularity over recent years.
Investing at least 80% into UK-listed companies, the fund aims to invest in those offering growth potential whilst also appearing relatively undervalued by the wider market.
Some of its largest holdings include pharmaceutical giant AstraZeneca, insurance firm Prudential and credit reporting company Experian, which make up 4.6%, 4.4% and 4.3% respectively
However, it also owns positions in US-technology company Microsoft, and US life sciences giant ThermoFisher, which both have contributed to its recent performance.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund has an ongoing charges figure (OCF) of 0.76% and currently yields 1.26%.
BlackRock UK
The £633m BlackRock UK fund was the next of the five funds that managed to achieve top-quartile returns and volatility. Its delivered 65.9% to investors for the five-year period, with an annualised volatility of 13.8%.
The strategy predominantly invests in large-cap companies over £10bn in size, although it does have roughly 10% of its portfolio invested in small-cap firms under £2bn in size.
Headed by Nicholas Little, the portfolio’s biggest position is in global mining firm Rio Tinto, with a 6.5% weighting. The fund’s next biggest weightings are in industrial equipment rental firm Ashtead Group at 4.3% and mining firm BHP Group at 3.8%.
North American equities make up a large portion of its of non-UK equity exposure. 18% of the portfolio is invested into North American companies including Paypal, which also features in its top-10.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
It has an OCF of 0.92% and currently yields 0.56%.
LF Lindsell Train UK Equity
The £6.5bn LF Lindsell Train UK Equity fund was another fund that featured, with returns of 57.5% and an annualised volatility of 12.1%
The portfolio is managed by FE fundinfo Alpha Manager, Nick Train, who runs a high conviction, highly concentrated, buy-and-hold approach.
The fund’s top-10 holdings make up nearly two-thirds of the entire portfolio. Its biggest positions are in Diageo, Relx Group and Burberry, which make up 9.95%, 9.93% and 8.64% respectively.
Train’s high weighting to London Stock Exchange Group (currently 8%) has been one of the biggest contributors to the fund’s returns over the past several years, with the stock up 189.8% over the past half-decade.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
It has an OCF of 0.65% and currently yields 1.55%.
Liontrust Special Situations
The fourth fund to feature was the £6.3bn Liontrust Special Situations fund, which delivered 65.7% over the period, with an annualised volatility of 12.3%.
The strategy is run by FE fundinfo Alpha Managers Anthony Cross and Julian Fosh, who take a quality-growth approach to investing in UK equities, where they invest at least 90% of the portfolio.
Cross and Fosh buy companies with durable competitive advantages that exhibit high profitability levels, and for longer than expected.
Its largest holdings include Diageo, Royal Dutch Shell and Relx Group, which make up 3.8%, 3.3% and 3.1% of the fund, respectively. It also currently has all of its portfolio invested in UK equities.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund has an OCF of 0.82% and currently yields 1.22%.
VT Castlebay UK Equity
The last fund was the £87m VT Castlebay UK Equity fund – the smallest to feature. Headed by FE fundinfo Alpha Manager David F Ridland, the strategy delivered a 55.5% return over the period, with an annualised volatility of 11.9%.
This fund is the only one that followed a value-driven approach. It invests in companies with a margin of safety by buying stocks trading at a discount to their own history.
It also places a focus on companies with strong cash flows, high returns on capital and low leverage.
Its biggest two positions are in chemical companies Croda International and Victrex, which make up 5.5% and 5.4% of the portfolio. With 26 holdings, it is also one of the most concentrated funds of the five that featured.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
It has an OCF 1% and currently yields 2.72%.
The risk-free rate used in calculations was 0.4%, the weighted average Bank of England base rate of the past five years.