Some of the UK’s most respected managers have suffered in the past year as they have failed to own rallying parts of the market, but that could be about to change as positive data heralds a market shift, according to top fund selectors.
UK growth funds run by Axa Framlington’s Nigel Thomas, M&G’s Tom Dobell and F&C’s Peter Lees rank among the handful of worst performers in the 272-fund IMA UK All Companies sector in the past 12 months.
But experts have said that the UK equity stockmarket’s ongoing rally is entering a new phase, with late cyclical stocks such as industrials set to lift the long-term outperformers back into the top decile.
The prediction comes after respected macroeconomic research group Niesr last week estimated that the UK economy grew by 0.8 per cent in the three months to end-April, bringing to an end several months of stagnation.
Elsewhere a trio of PMI data announcements for the services, construction and manufacturing sectors pointed to the green shoots of economic recovery.
“We are seeing upturns in data, from both the UK and the US, which equity markets are grabbing onto with both hands because [the data] fills people with more enthusiasm,” said Jupiter Merlin fund of funds co-manager Algy Smith-Maxwell.
In recent months, so-called ‘defensive’ stocks have led the rallies in the UK equity market as investors channelled positive sentiment into quality companies amid the ongoing economic crisis.
Mr Smith-Maxwell said if the rally was to continue, as he expects it to, “then there is a reasonable chance that those managers with a cyclical bias will begin to be rewarded, so those like Nigel Thomas will do well”.
Mr Thomas’s Axa Framlington UK Select Opportunities fund gained just 12.6 per cent in the year to April 26, according to Morningstar, compared to a sector average gain of 18.6 per cent. Its 52.6 per cent five-year gain ranks it in the top quartile.
The fund is roughly 30 per cent weighted in industrials, 18 per cent in consumer services and 12 per cent in oil & gas – cyclical sectors that have lagged market rallies.
M&G’s Mr Dobell runs the Recovery fund, which is roughly 20 per cent weighted in oil & gas, 17 per cent in industrials and 14 per cent in consumer services.
F&C’s UK Alpha fund run by Mr Lees has roughly 15 per cent in industrials, 13 per cent in consumer services and 13 per cent in oil & gas, and he also has a close to 19 per cent weighting in ultra-cyclical financials.
Sanlam Private Investments UK’s managed funds head Paul Surguy added that the changeable nature of the recent market rallies had proved tough for ‘buy and hold’ investors, affecting managers such as Mr Thomas and Mr Dobell.
Aberdeen multi-manager Scott Spencer added the gap between defensive and cyclical stocks was set to “narrow”.
“Cyclicals will have to take leadership of this rally and there are early signs that is happening, but it is a bit early to tell if that has really changed yet,” he said.
