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The funds that dived and thrived in a torrid week

The funds that dived and thrived in a torrid week
US investors were the catalyst for last week's heavy stock market falls, but the fund managers who suffered the worst of the sell-off were those with a focus much closer to home.

As our exclusive Accumulator data table shows, almost every major global stock market was heavily in the red over the five days to 11 October. The S&P 500 was down 7.2% in pound terms, while losses on China's Shanghai Composite index hit double digits.

Only Brazil was spared, thanks to the surge in its stock market earlier in the week as far-right president candidate Jair Bolsonaro took a commanding lead in the first round of voting.

The FTSE 100 was down 5.4%, but not featured in the table is the performance of the Alternative Investment Market, which recorded losses nearly double that, of 10.4% over the five days to Thursday 11 October.

Among the worst hit AIM stocks were some of the 'darlings' that have attracted heavy fund manager backing as their shares have soared on the prospects of stellar growth.

Keywords Studios, the computer games services supplier whose shares have rallied 660% over the last three years, lost a quarter of its value over the week to last Thursday, although its shares have jumped 9% in Friday's market rebound.

Blue Prism, which has enjoyed a similarly spectacular rise, floating at 78p per share less than three years ago and reaching a peak of £25.60 last month, was another big faller. Shares in the robotic automation company plunged 18% over the week to Thursday. 

Not to mention Fever-Tree, whose heavy share price fall attracted the most attention of all the AIM fallers. The stock was down 18% over the week to Thursday, although its recovery has gathered strength, with the shares up 9% on Friday. Today it is down 2.6% to £28.81.

What these three companies share is an allure for growth investors. They trade on heady valuations as investors are not paying for the earnings they are delivering now but the growth they offer in the future: Keywords and Fever-Tree trade on price-earnings ratios of 92 and 61 times, while Blue Prism is yet to even make a profit. And it is exactly those sorts of companies that have been hit hardest by this week's sell-off.

10 biggest fund fallers this week

Fund % return 5 days to 11 October
Allianz UK Mid-Cap -13.3
Marlborough UK Multi-Cap Growth -13.1
Baillie Gifford Long Term Global Growth -13
CCM Intelligent Wealth -12.7
Slater Recovery -12.6
T. Rowe Global Technology Equity -12.3
Baillie Gifford Global Discovery -12.2
Baillie Gifford Greater China -12.2
Legal & General European -11.8
Baillie Gifford American -11.8

Source: Lipper 

Which explains why Andrew Neville and Matthew Hall's Allianz UK Mid-Cap fund was the heaviest hit of all funds in the UK over the last week. Down 13.3% over the five days to Thursday, Neville and Hall hold Blue Prism as their biggest position, at 7.8% of the fund, and a 6.2% holding in Keywords Studios.

Marlborough UK Multi-Cap Growth was close behind, down 13.1%. Citywire AA-rated manager Richard Hallett holds Blue Prism, Fevertree and Keywords Studios in his top 10. Top holding Burford Capital, another AIM darling, tumbled 16% over the week, although its shares jumped 5% on Friday.

Also weighing on returns was a top 10 position in the Scottish Mortgage investment trust: its open-ended equivalent Baillie Gifford Long Term Global Growth was the third biggest fund faller of the week, down 13%.

Mark Slater's Slater Recovery fund fell 12.6% and, as Thursday's fund prices continued to filter through over the night, emerged as the biggest fund faller in the sell-off, down 7.8% on Thursday alone.

A 24% fall in the shares of fourth biggest holding First Derivatives was among the bigger weights on the portfolio, although the shares are up 7.5% today.

10 biggest fund risers this week

Fund % return 5 days to 11 October
City Financial Absolute Equity 11.5
VT Oxeye Hedged Income Option 4.8
Sanditon European Select 4.3
Sanditon UK Select 3.7
Majedie Tortoise 2.8
BlackRock Emerging Markets Absolute Alpha 1.8
Premier Defensive Growth 1.5
F&C Global Equity Market Neutral 1.5
JPM Global Macro Opportunities 1.2
H2O MultiReturns Fund 1.1

Source: Lipper

Funds that delivered a positive return over the last week were unsurprisingly thin on the ground. Of the 2,808 funds based in the UK, just 73 did so, and only 11 delivered 1% or more over the five-day sell-off.

One fund stands out, however. City Financial Absolute Equity surged 11.5% over the five days, as manager David Crawford's portfolio, which he has characterised as 'short growth and long value', finally found itself on the right side of market movements, jumping 4.3% on Thursday alone.

Investors will be forgiven for not celebrating just yet though, as the fund remains nearly 20% down since the turn of the year.

'Absolute return' funds, which have the ability to 'short' shares, or bet against them, as well as buying stocks, were the only to make sizeable gains in a week when all markets were turning south.

Among them were funds run by notoriously bearish fund managers Sanditon, whose European Select and UK Select funds jumped 4.3% and 3.7% respectively. Both funds are heavily shorting growth stocks.

Value-focused managers Majedie meanwhile delivered 2.8% on its Tortoise fund, the only of its retail funds that has the ability to short shares.

All of these managers will be hoping last week's punishment for growth stocks is the start of something bigger, as they have all been positioned on the wrong side of the stock market's dynamics over the last few years.

Sanditon UK Select, European Select and City Financial Absolute Equity are clustered at the bottom of the three-year performance charts in the Investment Association's Targeted Absolute Return sector, down 8%, 8.4% and 18.3% respectively. Majedie Tortoise is up just 1.3% over the same period.

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