L&G UK Index Trust, TB Evenlode Income and Merian UK Smaller Companies are among the UK equity strategies that investors across all age groups can hold, according to the FE fundinfo Adviser Fund Index (AFI) panel.
The FE AFI portfolios are compiled by a panel of the UK’s leading financial advisers and are targeted at investors in different age groups. The FE fundinfo AFI Aggressive portfolio is aimed at investors in their late 20s, AFI Balanced is suitable for those in their mid-40s and AFI Cautious is for those in their late 50s.
Up to 10 funds for each portfolio are chosen by the panellists, which are weighted and rebalanced twice a year.
Below, Trustnet considers the three main equity sectors – IA UK All Companies, IA UK Equity Income and IA UK Smaller Companies – to find out which funds advisers would recommend to investors of any age.
Source: FE Analytics
The largest IA UK All Companies fund on the list is the £6.6bn L&G UK Index Trust, a FTSE All Share-tracker. It is one of two UK passive strategies to be found in each of the FE fundinfo AFI portfolios, along with Fidelity Index UK.
However, there are several large and well-known active strategies that advisers say should be a core holding for investors of all ages.
The biggest is the £5.2bn Liontrust Special Situations fund, overseen by veteran investors Anthony Cross and Julian Fosh. The strategy is popular among advisers, with Cross and Fosh employing their ‘Economic Advantage’ process to find companies with durable competitive advantages which allow them to outperform rivals and deliver higher levels of profitability for longer.
Over the past five years – the recommended minimum holding period – Liontrust Special Situations has made a total return of 20.63 per cent, compared with a gain of 6.2 per cent for the average peer and a 5.06 per cent rise in the FTSE All Share index.
Another large fund on the list is TB Evenlode Income– one of several equity income strategies found in the IA UK All Companies sector – managed by Hugh Yarrow and Ben Peters.
The £3.8bn fund, which targets long-term total returns while placing an emphasis on income, has a yield of 3.3 per cent and focuses on companies with high returns on capital and strong free cash flow. Over the past three years, TB Evenlode has made a total return of 24.47 per cent.
For investors wary of larger funds, Gerard Callahan’s £460.5m Baillie Gifford UK Equity Alpha fund might fit the bill. It aims to outperform the FTSE All Share by at least 2 per cent over rolling five-year periods, investing in a concentrated portfolio of quality-growth UK companies for the long term. Over the past five years it is up by 56.08 per cent.
One of the bigger funds from the UK equity income space was the £3.9bn Threadneedle UK Equity Income fund, which is managed by Richard Colwell. The manager seeks out companies with above-average income generation potential as well as those with opportunities for share price or dividend growth.
Source: FE Analytics
The fund has made a total return of 5.73 per cent over three years, compared with a 2.52 per cent gain for the average IA UK Equity Income peer. It has a yield of 4 per cent
The highest yielding of the equity income strategies is the £1bn Schroder Income Maximiser fund might appeal, with its yield of more than 7 per cent.
The fund is managed along the same lines as its Schroder Income sister fund (which is also in all three FE fundinfo AFI portfolios) but uses covered call options to exchange capital returns for income and help boost the natural dividend yield. Given its pure focus on income and the sacrifice of capital gains, Schroder Income Maximiser has made a loss of 3.5 per cent in total return terms over the past three years.
While most of the strategies invest across the market cap scale, the £627.1m Unicorn UK Income fund has a greater bias to small- and mid-cap stocks.-The fund is overseen by managers Fraser Mackersie and Simon Moon and will even invest in companies listed on the Alternative Investment Market – the London Stock Exchange’s junior market for smaller, growing companies. Unicorn UK Income has a yield of 4.74 per cent and has made a total return of 12.2 per cent over the past three years.
Finally, there are just two IA UK Smaller Companies strategies that advisers would recommend to investors of all ages: Artemis UK Smaller Companies and Merian UK Smaller Companies.
Source: FE Analytics
The latter – the £1.2bn Merian UK Smaller Companies fund – is arguably the better-known of the two.
Merian’s UK small- and mid-cap team is held in high regard by the analysts at Square Mile Investment Research & Consulting, as is manager Dan Nickols.
“He is conscious that the attributes the team seek in companies tends to lead the portfolio to have a bias towards growth,” they said.
“Nevertheless, given that the investment process is structured in order to have a consideration of the broader economic backdrop, the manager has the flexibility to adjust the portfolio’s positioning to capitalise on more defensive or cyclical opportunities at the appropriate juncture.”
Over the past three years, Merian UK Smaller Companies has made a total return of 24.23 per cent against a 21.97 per cent gain for the average IA UK Smaller Companies peer and a 4.67 per cent rise for the Numis Smaller Companies Excluding Investment Companies index – a commonly used benchmark.
The £496m Artemis UK Smaller Companies fund is overseen by Mark Niznik and William Tamworth, who take a bottom-up approach to investing, meeting 300-500 companies per year to identify the companies that will produce excellent risk-adjusted returns over the longer term. Over three years the fund has made a total return of 23.63 per cent.