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The best UK equity funds of 2017
Our sister site Money Observer's UK fund winners pulled off the strongest combination of performance and low volatility. Andrew Pitts and Holly Black reveal all.
Best larger UK growth fund
Liontrust Special Situations
1-year return: 23.0%; 3-year return: 39.9%
Managed by Anthony Cross and Julian Fosh under their economic advantage strategy, Liontrust Special Situations took the highly commended award in our 2013 awards, but this is the first time it has taken top spot.
Cross has managed the fund since its inception in 2005, with Fosh joining him in 2008, and its assets have now grown to more than £2.7 billion spread across 50 holdings in the portfolio.
The two managers are looking for businesses which have intellectual property, strong distribution channels and a significant amount of recurring business. Cross and Fosh also look for companies with strong brands and good customer relationships; they think these attributes give a business the power to produce higher levels of profitability for longer than expected.
Fund awards 2017
- Best UK equity funds
- Best global equity funds
- Best regional funds
- Best mixed asset funds
- Best bond funds
- Best property funds
Some of the largest positions in the fund are in big blue-chip businesses - almost 40% of the fund's assets are in FTSE 100 (UKX) companies - with strong brand catalogues such as Unilever (ULVR) (which is behind household names such as Flora and Hellmann's), Diageo (DGE) (which makes popular drinks such as Guinness), and Reckitt Benckiser (RB.) (which makes well-known products such as Dettol and Gaviscon). Any smaller company the fund invests in must have at least 3% of its shares owned by its board of directors.
The managers say a recent rally in the pound has meant the FTSE companies with international earnings in which it invests - for example pharma giants AstraZeneca (AZN) and GlaxoSmithKline (GSK) - have been poorer performers, having had a sustained strong run on the back of sterling's weakness. But the fund's substantial weight in smaller and medium-sized businesses has benefited as investors' risk appetite has increased.
Best Smaller IK growth fund
CFP SDL UK Buffettology
1-year return: 21.6%; 3-year return 51.5%
The Buffettology fund, which aims to replicate the investment style of legendary value investor Warren Buffett, has made it a hat-trick as it takes the title of Best Smaller UK Growth fund in our awards for the third year running.
The fund, which launched in 2011, has seen its assets rocket to £144 million from just £42 million a year ago - our awards criteria for smaller funds is that they should not be larger than £150 million in assets, so if its success continues, this could be the last year it is eligible for this category.
Manager Keith Ashworth-Lord aims to invest in companies with strong balance sheets and the ability to grow over the long term. His style is known as "business perspective investing", and follows the Buffett principle of buying shares in good businesses for less than the business is intrinsically worth, and ideally holding the shares forever. While shares may not always be kept forever, Ashworth-Lord is investing on a time horizon of at least five to 10 years.
The manager has introduced a number of new shares into the portfolio over the past year, growing its holdings from 27 shares to 30. New incumbents include high street retailer Next (NXT), which Ashworth-Lord says has seen its share price more than halve since 2015 despite its margins staying strong, and Craneware (CRW), a provider of software for the healthcare industry; Ashworth-Lord likes the company's 'sticky' customer base.
The fund has returned 21.6% over the past year, ranking in the second quartile among its peer group of 259, but comfortably beating the average return of 17.7% achieved in the sector over the period. Over three years it returned more than double the sector average of 23.4%.
Highly commended larger UK growth fund
Old Mutual UK Dynamic Equity
1-year return: 26.6%; 3-year return: 49.5%
Old Mutual UK Dynamic Equity is our Highly Commended Larger UK Growth fund for a second consecutive year; it is also a Money Observer Rated Fund, and is in the top quartile of the 259 funds in the IA UK all companies sector over the past one and three years to the end of March 2017.
Manager Luke Kerr has managed the £540 million fund since it launched in 2009. He has the ability to short 30 % of the fund's assets (betting they will fall in value), as well as investing in small and medium sized businesses he thinks will grow. Current investments in the portfolio include online retailer Boohoo.com (BOO), sports retailer JD Sports (JD.) and challenger bank OneSavings Bank (OSB). Some 27% of the portfolio is in industrial companies and a further 22% of its assets are in financial firms.
While the fund invests in the shares of 50 companies as at mid-May, it has just two short positions.
Highly commended smaller UK growth fund
Threadneedle UK Extended Alpha
1-year return: 17.5%; 3-year return: 36.8%
The Threadneedle UK Extended Alpha fund has marginally underperformed its peer group over the past year, but it has outperformed over the long term, returning 36.8% over the past three years compared to an average return of 23.6% across the IA UK all companies sector.
The fund, which launched in 2003 and has been managed by Chris Kinder since 2010, can take short positions in shares - currently it has a 4.4% position against companies in the industrials sector and is 2.9% short against consumer services stocks. Some of its biggest investments are in FTSE 100 companies such as pharmaceutical giant GlaxoSmithKline and British American Tobacco (BATS).
This fund previously won the highly commended award in 2015. It now has £125 million of assets under management.
Best larger UK equity income fund
1-year return: 20.3%; 3-year return: 44.6%
Evenlode Income has secured a second successive victory as our Best Larger UK Equity Income fund. The fund won best smaller fund in this sector in 2014, but as its success grew so did its assets, and it duly graduated to larger fund status. Evenlode Income now has more than £1.3 billion of assets under management - up from just £400 million a year ago.
Managers Hugh Yarrow and Ben Peters have set up shop in the Oxfordshire countryside, which helps them to escape the noise and distraction of the City; they take a long-term approach to investing, with a low turnover in the fund, and like to think of themselves as owning small pieces of the businesses they hold, rather than share ownership being just a piece of paper.
Yarrow says what they do is nothing fancy, radical or exciting, but is a case of being steadfast and single-minded.
The duo like companies that have a good reputation for quality, whose products or services generate recurring revenue from repeat business, and which don't own too many assets such as real estate or oil rigs. The biggest investments include consumer stocks Unilever, Diageo and Imperial Brands (IMB); indeed, consumer brands are a major feature in the portfolio, with the consumer goods sector accounting for almost one third of the overall portfolio.
A recent new addition to the portfolio is trade exhibition group UBM (UBM); the team like its high barriers to entry as a global leader in its industry, and the high level of recurring revenue the business produces. The fund also already invests in two of the company's largest peers, Relx (REL) and Informa (INF).
Evenlode Income is yielding a healthy 3.3%.
Evenlode has been a Money Observer Rated Fund since 2015 and we like the managers' distinctive approach, buying companies which can grow sustainably without needing to reinvest much capital back into the business.
Best Smaller UK Equity Income Fund
Franklin UK Rising Dividends
1-year return: 19.2%; 3-year return: 38.7%
After winning Best Smaller UK Equity Income fund in our awards in 2015, Franklin UK Rising Dividends has returned this year to take top spot for a second time. The fund aims to beat the FTSE All-Share index (ASX) over the long term by investing in businesses that can consistently grow their dividends.
Manager Colin Morton is looking for financially sound firms with strong management teams, and focuses on those which have increased their dividend payouts in at least eight out of the last 10 years and have not cut the dividend at all over that period.
The fund was renamed in 2015 from the Franklin UK Blue Chip fund - which Morton had run since 2000 - when it changed its strategy to focus on growing its income. That fund was a top-quartile performer within the IA UK all companies sector in its final year before the name change, though it was in the third quartile among its peers over three years.
Morton was inspired to make the change after he saw the success of a similar strategy in the US; he thinks the fund will appeal to the retirement income market as more investors look to keep their money invested instead of buying an annuity. The focus on growing dividends rather than large dividends means he can opt for lower-yielding stocks which have the potential to grow their payouts above the average over the long term.
With a relatively concentrated portfolio, the fund currently invests in just 39 companies. Among those are multinational contractor group Compass (CPG) and British American Tobacco, both of which have raised their dividend every year for the past decade. The £56.5 million fund yields just over 3%.
Highly commended larger UK equity income fund
1-year return: 12.6%; 3-year return: 36.8%
The Trojan Income fund aims to provide an above-average income by investing in companies which can also grow over the medium term. Currently the fund, which was highly commended in our awards in 2015, is yielding 3.5%. It is in the fourth quartile of its sector over one year, but is in the top quartile over three years with a return of 36.8%.
Francis Brooke has managed the £3.4 billion fund since it was launched in 2004. He likes companies where the management is focused on returning money to shareholders. One of the fund's biggest holdings is Lloyds Bank (LLOY), which has paid shareholders two special dividends since 2015.
Another favourite is WH Smith (SMWH): over the past 10 years, share buybacks and dividend payments have amounted to more than the firm's market capitalisation in 2007. Brooke says: "In both cases cash has been returned to shareholders rather than invested in expansionary projects with a poor risk/return profile."
Highly commended smaller UK equity income fund
Kames UK Equity Income
1-year return: 14.7%; 3-year return: 30.8%
Although the Kames UK Equity Income fund has not won one of our awards before, it was awarded highly commended in this category two years ago. Currently yielding a chunky 4.3%, the fund is co-managed by Douglas Scott and Iain Wells; Scott focuses on the tobacco, real estate, telecoms, beverages and oil sectors while Wells analyses insurance, retail, engineering and paper and packing firms. The pair have managed the £53 million fund, which has 51 holdings, since its launch in 2009.
Three-quarters of the fund's assets are in large companies such as HSBC (HSBA) and Imperial Tobacco, while 20% is in medium-sized firms. It is in the top quartile of the UK equity income sector over three years, with a return of 30.8% over the period. Over the past year, it has underperformed its peers slightly, returning 14.7% compared to a sector average of 15.3%.
Best UK smaller/mid cap equity fund
TB Amati UK Smaller Companies
1-year return: 25.3%; 3-year return: 49.7%
Amati UK Smaller Companies has been praised in our list of Rated Funds for 2017, and last year took the title of Best Smaller UK Smaller/Mid Cap Equity fund in our awards. This year, rather than differentiate between larger and smaller funds, we have pitted all smaller companies funds, large and small, against each other - and the £64.4 million Amati fund has taken the crown.
This smaller companies investment fund focuses on firms with a market capitalisation of less than £500 million, including those on the junior Alternative Investment Market. Dr Paul Jourdan has headed up the fund since 2000; he was joined by Douglas Lawson in 2009 and David Stevenson in 2012. The trio look for poorly researched companies that may offer good opportunities at attractive share prices. Current investments include premium mixer drinks maker Fevertree Drinks (FEVR) and fastfood delivery smartphone app JustEat (JE.).
The group says that having three managers running the portfolio means each stock put forward is subject to stringent review. The team seek out management teams with a track record of success and companies which have a high level of intellectual property and the ability to commercialise it; they avoid businesses with no clear competitive advantage and those where there are already larger rivals dominating the market in which they are operating.
They are also looking for companies they can back over the long term. While they can only invest in listed businesses, the managers keep an eye on promising private companies which could float in the future, such as online musical instrument retailer Gear4Music (G4M), which listed in June 2015. The fund is comfortably within the top quartile among its peer group over one and three years.
Highly commended UK smaller/mid cap equity fund
MI Discretionary Unit
1-year return: 33.1%; 3-year return: 47.4%
Managed by Simon Knott since 1993, the MI Discretionary Unit fund was first launched in 1963. It aims to provide an above-average yield for a growth fund. A tiddler, with just £38.3 million in assets under management, the fund has a bias to small and medium-sized companies, with much of the portfolio invested in the Alternative Investment Market, where fledgling businesses offer the potential for faster growth.
As well as currently yielding around 1.4%, it has returned an impressive 33% over the past year. Knott, an international chess master, says: "The important thing in chess, as well as in the stockmarket, is to make good decisions and keep your error rate down."
Knott says he is a "deep value" investor who tends to avoid getting bogged down in macroeconomic issues. He likes to visit businesses himself to "kick the tyres" and see the quality of the product and management at first hand.
His high-conviction approach shows in the fact that the top 10 holdings of the fund account for more than 60% of its assets. Its largest position is in ingredients company Treatt, which makes up some 11.2% of the portfolio.
Best ethical/SRI equity fund
F&C Responsible Global Equity
1-year return: 30%; 3-year return: 58.5%
Our ethical SRI fund awards are for those defined by Morningstar as 'socially conscious' funds, which means they make investments based on issues such as human rights or environmental responsibility, and also take into account firms with good corporate governance or strong employee relations. The F&C Responsible Global Equity fund seeks out companies making a positive contribution to society and avoids those with unsustainable business practices.
The fund has several layers to its responsible approach, first applying ethical screening which excludes companies according to certain criteria. It then assesses a firm's environmental, social and governance (ESG) standards, and next looks for businesses from a thematic perspective, targeting those set to benefit from long-term sustainability themes. The investment team also actively engages with the companies it invests in, to encourage best practice.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise.The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|JD SPORTS FASHION||385.20p||-0.10%|
|FTSE ALL SHARE||£4,255.20||0.25%|
|BRITISH AMERICAN TOBACCO||3,869.00p||1.82%|
|LLOYDS BANKING GROUP||65.67p||-0.50%|
|RECKITT BENCKISER GROUP||6,028.00p||0.00%|
|All data 15min delayed as of: 04:39:10 27/05/18|
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