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Fund Review: UK Opportunities


For some UK opportunities managers it might mean a valuation opportunity; for others they will be watching for a perceived opportunity in a business or market cycle.

Funds in this category are also able to invest across the market-cap spectrum, although some will have a bias to small or large caps.

Among the UK opportunities funds listed on FE Analytics, the average return in the past 10 years to March is 120 per cent, compared to the IA UK All companies sector average of 109.9 per cent and the FTSE All-Share index average of 114.8 per cent in the same period. Many of the funds have clocked up long-term outperformance, although over the shorter term their performance has suffered.

In the past 12 months the average return among the UK opportunities peer group is 4.8 per cent, which lags both the sector average of 6.8 per cent and the index average of a 9.6 per cent rise.

Of the 23 UK opportunities funds on FE Analytics, nine have outperformed the IA All Companies sector over five years to March 19, while 12 funds returned more than the FTSE All-Share index over the same period.

The £67.8m Neptune UK Opportunities fund is one of the top performers among these funds, although it has recently had a change at the top. Mark Martin took over in February this year after former manager Scott MacLennan left the investment firm amid a shake-up.

In the past 12 months only three funds have managed to beat the FTSE All-Share index in performance terms – Newton UK Opportunities, Franklin UK Opportunities and JOHCM UK Opportunities.

At the other end of the performance table lies the Aberdeen UK Opportunities Equity fund, which has been in the bottom quartile of the sector over one, three, five and 10 years. In the five years to March 19, it has only managed a paltry 12.96 per cent return.

Turning to the economic outlook for the UK, the impending general election may well be playing on managers’ minds.

Ben Russon, manager of the Franklin UK Opportunities fund, admits the election is “unlikely to produce a clean result”.

He continues: “The problem is we could have an extended period of instability. There could be a second election or there could be a weak coalition formed with multiple parties that struggle to make effective decisions.

“Obviously, we’ve just had a whole parliament of coalition government, so at least we’ve had proof that a coalition will work and you can still make progress with a coalition.”

But his thoughts are also on the broader macroeconomic backdrop.

“Will US rates be raised?” asks Mr Russon. “When will we see the first UK rate rise? These kinds of issues that we haven’t faced for five or six years are now being openly contemplated.

“In many ways you can see 2015 being a continuation of 2014, a fairly volatile backdrop influenced by liquidity from the European Central Bank.”


Axa Framlington UK Select Opportunities

Nigel Thomas’s £4.49bn fund has clocked up several years of steady outperformance. Its objective is capital growth by investing in UK firms where the manager believes above-average returns can be realised. The portfolio has 56.74 per cent in the FTSE 100, 28.33 per cent in the FTSE 250 index and 4.34 per cent in the FTSE Small Cap index. Over 10 years to March 19, the fund returned 162.09 per cent, against the IA UK All Companies sector average of 109.86 per cent, according to FE Analytics. Among its top 10 holdings are ITV, Prudential and St James’s Place.

Standard Life UK Opportunities

Caspar Trenchard runs this £142m fund, which has a small- and mid-cap bias. It is described on its factsheet as being managed by the investment team that tries “to take advantage of opportunities they have identified”. The portfolio has 31.9 per cent in the FTSE Small Cap index and 29.8 per cent in the FTSE 250 index, with Marshalls Group, Fever Tree and Premier Foods the top three holdings. Over three years to March 19 it generated a 49.80 per cent return, compared to the FTSE All-Share index average of 34.82 per cent, FE Analytics shows.


Schroder UK Opportunities

This £848.1m fund from Schroders has been run by Matt Hudson since September 2014. It aims to invest at least 80 per cent of its portfolio in large and mid-cap UK companies. According to its factsheet the manager’s approach is based around the business cycle, in an attempt to “identify turning points in the cycle and then focus on the types of companies they believe will benefit from it”. It has produced a particularly impressive performance over three, five and 10 years to March 19. FE Analytics shows the fund delivered a remarkable 196.98 per cent to investors across 10 years. Its top-three holdings are BP, GlaxoSmithKline and AstraZeneca.

In this special report