UK equity funds - Premier League Nov 15 update

UK equity fund award medal

UK EQUITY INCOME SECTOR

Majedie UK Income

Majedie UK Income is one of only a handful of Money Observer Premier League members to have held onto its place in the league since our previous review.

It's testament to the astonishing success of this relative newcomer, launched in December 2011 under the charge of current lead manager Chris Reid. The fund has thrived, and it now ranks among the top five funds in the UK equity income sector over three years to 31 August.

Perhaps more importantly, it boasts the best three-year consistency score of all league members: it has managed to stay between the first and second deciles of the sector over the period.

Reid says the team's focus on identifying companies that 'are really trying hard to improve their strategic and operational positions' while avoiding 'status quo companies' has been key to the fund's performance.

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Reid is not, however, complacent about his success. He says: 'This is still a young fund, and we feel we are just getting going. We need to keep working hard to find the companies that are really trying to change the game in their industries. We can never guarantee good performance, but we can guarantee hard work and application.'

He is keeping an eye on areas of the UK market that look 'good value', including insurance companies and the mining sector.

UK SMALLER COMPANIES SECTOR

Franklin UK Smaller Companies

Franklin UK Smaller Companies enjoyed a strong period during the past three years, returning over 35 per cent more than the average fund in the UK smaller companies sector.

River and Mercantile UK Smaller Companies and Livingbridge Wood Street Microcap Investment both returned more during the same period; however, the former is soft-closed and the latter is not widely available, so Franklin's fund takes the trophy.

According to co-manager Richard Bullas, individual stock selection has contributed most to the fund's performance over the past three years. The team's focus on smaller companies further down the market-cap scale has been beneficial.

He says: 'There are far more opportunities in the sub-£500 million market-cap space than there are above it, which is why we currently have around 70 per cent of the fund invested in companies of this size.'

He adds that this is a sizeable increase compared with a year ago, and one that he would be prepared to add to. Favoured positions include distributor Clipper Logistics, the fund's top holding, and Avon Rubber, its second biggest position. Bullas believes his team's determination to be a 'true smaller companies fund' should ensure continued success.

UK ALL COMPANIES SECTOR

Old Mutual UK Dynamic Equity

Launched under the management of the highly rated Luke Kerr in 2009, the £322 million Old Mutual UK Dynamic Equity fund has rarely disappointed its investors.

It has delivered the third-best return over three years of any fund in the 275-fund UK all companies sector and the second-best return over five years at 133 per cent, compared with a sector average of 48 per cent.

Kerr says asset allocation has played a strong role in this outperformance, with the fund's high exposure to UK-focused equities working well.

He adds: 'We have been underweight in sectors with high international exposure, such as oil and gas and mining, as these were on very high valuations three years ago but the outlook was poor. We have been overweight in areas such as housebuilders, construction and retailers, and we have benefited from that as the UK economy has strengthened.'

Kerr is able to hold short positions in the portfolio, which he says has contributed around 1 per cent to absolute performance over the past three years. He believes this flexibility should serve the fund well next year.

Premier League constituents


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