Investments  

Fund Review: UK opportunities funds offer overlooked ideas

The UK economy currently appears to be back on track, albeit in a fragile state, according to the chancellor, which also means there are opportunities for stockpickers to find hidden gems..

In the expansive sector of IMA UK All Companies there are approximately 20 funds listed with a specific UK opportunities description in their title.

As you might expect with these funds, the majority are unconstrained portfolios focusing on stockpicking and finding ideas that are overlooked by the market. Some, as in the case of the £59.6m Neptune UK Opportunities fund (profiled on page 38) have an almost special situations type focus on ‘misunderstood’ but mostly undervalued companies.

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High conviction is another common characteristic in this sub-set of UK equity funds, with all three of the funds profiled investing in no more than 60 stocks. As Scott MacLennan, manager of the Neptune UK Opportunities fund, explains: “We’re not tip-toeing in. If we believe they’re worth investing in, we’ll take a sensible position.”

Within the peer group of 20 UK Opportunity funds in the UK All Companies sector, more than half have outperformed the sector average of 24.03 per cent for the 12 months to January 15, according to FE Analytics.

Among the best performers in this period are Leigh Himsworth’s £66m City Financial UK Select Opportunities fund, profiled on page 37, although the best return has come from the £164.7m Standard Life Investments UK Opportunities fund run by Caspar Trenchard, which returned 34.51 per cent.

Launched in 2002, the fund, like many, has a bias towards mid- and small-cap stocks, holding just 8.9 per cent in the FTSE 100 and the largest market cap weighting to the FTSE Small Cap at 31.7 per cent.

At the other end of the spectrum lies the £108.1m Swip UK Opportunities fund, run by the Swip global equity team. It produced a return of 12.05 per cent in the 12 months to January 15, according to FE Analytics data. This compared unfavourably with the 24.03 per cent from the IMA sector average and the FTSE All-Share return of 18.05 per cent. Again, it has a concentrated portfolio of approximately 42 holdings, but in November the main detractor appeared to be its exposure to emerging markets through stocks such as KSK Power Ventur and Nandan Cleantec.

As we move further into 2014, there seems to be a consensus that developed markets will start to overtake the emerging markets in terms of equity stockpicking. The interesting aspect will be whether an improving economic environment will help or hinder these managers.

PICKS

Standard Life Investments UK Opportunities

Managed by Caspar Trenchard since 2007, this fund has posted an impressive 34.51 per cent return over 12 months, and the long term track record looks equally strong with a 10 year return of 170.82 per cent. The fund’s largest sector weighting is to industrials at 24 per cent of the portfolio, but its large bias to small- and mid-cap stocks make it an interesting choice.

SVM UK Opportunities

Managed by Neil Veitch, this £104.8m fund has had a rocky time of late with three-year performance dropping off, although the longer term track record remains strong. The 12 month return of 32.73 per cent puts it in the top quartile of its UK Opportunities peers, while its five year figure of 270.62 per cent puts it at the top of the pile. The largest weighting is to cyclicals at 28.8 per cent of the portfolio. SVM recently promoted Craig Jeruzal from his role of UK investment analyst to deputy manager on the fund and with performance seeming to pick up, it could be one to watch.