Active managers are still struggling to consistently outperform, but those running UK smaller companies funds are putting up a stronger showing, according to the latest Fund Watch study from asset management group BMO.
The research, which examines how many funds deliver consistently top quartile returns in each of the last three years, found just 1.7% of funds available to UK investors did so over the 36 months to the end of March. That's below the historical range of between 2% and 5%.
But the study also highlighted the Investment Association's UK Smaller Companies sector as one where there was a greater showing of consistent outperformance, with three of the 47 funds managing the feat over the last three years. Eight of the 47 managed above average performance in each of the last three years.
The sector was also the strongest performer of all UK equity sectors in the first quarter of the year.
Kelly Prior, investment manager for BMO’s multi-manager team, said volatility at the beginning of the year brought down most sectors when compared with the previous quarter.
‘The UK Smaller Companies sector was the stand-out performer of the quarter, securing the highest proportion of funds delivering consistent returns,’ she said.
‘It also weathered the dip in markets in February, driven by a bout of volatility, better than most of the other sectors.’
There were eight smaller companies funds that BMO identified as top performers, with three popular billion pound-plus funds making it onto the list.
The top performer on the list is Nick Williamson’s (pictured above) Old Mutual UK Smaller Companies Focus fund, which has returned 102% over three years compared to 48.1% for the Investment Association UK Smaller Companies sector.
The £364 million fund is a more concentrated version of Citywire AAA-rated Dan Nickols’ Old Mutual UK Smaller Companies fund, which also made it onto the list of consistent outperformers. Although Nickols’ fund is significantly larger at £1.3 billion the performance has not been as strong as Williamson’s, returning 66.8% over three years.
The second best performer on the list is Jupiter UK Smaller Companies, run by James Zimmerman, one of the smallest funds to make it onto the consistent outperformers list at £296 million. Zimmerman has returned 92.2% over the past three years, with a portfolio featuring video game developer Frontier Developments (FDEV) as his largest holding, followed by Games Workshop (GAW), and Ocado (OCDO).
The smallest fund on the list is the third-best performer. TB Amati UK Smaller Companies, run by Citywire AAA-rated Paul Jourdan, has returned 86.5% over the past three years. The £119 million fund has been managed by Jourdan since 2000 but was formerly known as British Smaller Companies, and then CF Noble UK Smaller Companies.
Jourdan's top holding is Diversified Gas & Oil (DGOC), one of only two Alternative Investment Market (AIM)-listed oil and gas companies that pays a dividend, followed by pharmaceutical company Indivior (INDV), which creates drugs to treat heroin addiction.
Marlborough UK Micro Cap Growth is one of two funds run by Citywire AAA-rated Giles Hargreave (pictured) that has made it onto the list. The £1.1 billion fund has returned 78% over the past three years investing in companies with a market cap of £250 million or less.
The second of his funds on the list is Marlborough Special Situations, which invests in smaller companies with recovery potential. The £1.5 billion fund has returned 55.9% over the past three years.
The £818 million Liontrust UK Smaller Companies fund, which invests in companies with a ‘high degree of intellectual capital’ is also a consistent outperformer. Managers Anthony Cross and Julian Fosh, who are both Citywire AAA-rated, have returned 74.8% over the past three years against the sector average of 48.1%.
Citywire A-rated Andrew Brough’s Schroder Institutional UK Smaller Companies fund also made the grade, delivering 55.9% over the past three years. The £451 million fund holds Games Workshop as its largest position, followed by engineering group Trifast (TRFT).