We thought it worthwhile to take a glance at DFMs’ preference for UK equity funds since the inception of our database and see how those tastes have changed over time.
Investment houses have drastically reshuffled their picks over the past five years: what was popular then has fallen out of favour now.
The most popular choices among DFMs in 2018 were Liontrust Special Situations and Lindsell Train UK Equity, with 11 and 10 owners respectively.
These two funds remain popular, held by seven DFMs as the most popular funds in their category.
But the appetite for both funds has clearly waned somewhat.
Lindsell Train’s relative unpopularity can in part be explained by its underperformance over the past two years. It has now underperformed on a three year time horizon, as well as losing money over the past year with its AUM shrinking from £6.2bn in October 2021 to £3.9bn today.
Train’s aversion to investing in the commodity stocks that have been about the only area of the UK market to pique anyone’s interest in recent times, perhaps explains both the performance struggles and the outflows.
Not all allocators have lost faith, however, with Chris Ayton of You Asset Management sticking by the fund.
He says that while Lindsell Train’s recent performance has been lacklustre, there has been a general malaise towards UK equities in general, leading to bargain valuations of companies with otherwise strong balance sheets.
“We only added the Lindsell Train UK Equity fund to our clients’ portfolios in Q3 2022 when their results had dipped and their outflows were at their most severe,” he says.
“We fully understand that, just like the share prices of their underlying companies, their approach can be in and out of favour for long periods.
“However, as long as they remain disciplined to their approach, the underlying compounding of their durable businesses should deliver our clients’ attractive and superior absolute returns over the longer term.”
But one of the funds which has seen the biggest number of DFMs walk away has been Ninety One UK Alpha, which has seen five allocators head for the exit.
At the inception of our database it was held by nine allocators and now it is only held by four.
This fund has struggled to hit the heights, offering up third quartile returns in 2022, fourth quartile returns in 2021 and third quartile returns in 2019 (in 2020 it offered up second quartile returns).
As a result it has shrunk from £2.3bn in size in December 2020 to £427mn today.
JOHCM UK Opportunities has also been sold by five DFMs since 2018 and has shrunk from £310mn to £130mn over the same time period.
The shunning of these funds mirrors a wider shift among allocators away from UK equity. Since 2018, the total number of domestic equities held by DFMs has fallen from 48 to 45.
Average UK fund exposure in balanced portfolios has also fallen from 18 per cent to 14 per cent since 2021, suggesting that investors are growing fed up waiting for the FTSE to reverse its fortunes.
While we’ve mostly focussed on growth funds here, the picture differs somewhat when discussing the UK income sector. Asset Allocator recently covered the uptick in popularity here, with Evenlode Income entering the fray as the new most popular offering in our database.
It has amassed three new buyers so far in 2023, which takes the total to eight.
