Franklin Templeton’s UK Mid Cap fund was the best performing UK fund of 2019.
Data from FE Analytics showed the fund returned 42.3 per cent from January 1 to December 31 last year, bagging the top spot in the IA UK All Companies sector.
It was closely followed by Chelverton Asset Management’s UK Equity Growth fund, returning 40.58 per cent, and Aberdeen Standard’s UK Impact Employment Opportunities Equity Retail fund, which returned 40.55 per cent over the same time period.
On average funds in the UK All Companies Sector returned 16.33 per cent over the year.
Aberdeen Standard featured the most in the top 10 funds for performance, with its UK Mid Cap Equity fund and its UK Opportunities Equity Retail fund returning 39.6 and 37 per cent respectively, landing fourth and 10th place.
| Rank | Fund | Return (%) |
| 1 | Franklin UK Mid Cap | 42.3 |
| 2 | MI Chelverton UK Equity Growth | 40.58 |
| 3 | ASI UK Impact Employment Opportunities Equity Retail | 40.55 |
| 4 | ASI UK Mid Cap Equity | 39.61 |
| 5 | Premier UK Growth | 39.42 |
| 6 | LF Miton UK Value Opportunities | 39.19 |
| 7 | Premier Ethical | 38.66 |
| 8 | Slater Growth | 37.87 |
| 9 | Liontrust UK Ethical 2 | 37.83 |
| 10 | ASI UK Opportunities Equity Ret Platform 1 | 37.1 |
Darius McDermott, managing director at Chelsea Financial Services, said: “The main takeaway is the outperformance of the UK mid caps against large caps and that growth outperformed value.”
The growth style of investing has been in favour since the financial crash as the growth style of investing performs best when interest rates and bond yields are low.
While value stocks rallied in the second half of 2019 despite no rise in interest rates, but growth funds have performed better overall.
The rally in value stocks has been attributed to the fact so many fund managers have been buying into growth stocks in recent years, it has pushed their price up and made them too expensive.
Martin Bamford, head of client education at Informed Choice, said the top performing funds appeared to have "taken a lot of risk" to achieve these results.
He added: "It could be argued that had bets gone in the other direction, the performance story would look very different.
"Investors who opt for mid and smaller cap companies should be rewarded for the additional risks they take, with the potential for higher returns."
Mr Bamford said the 2020 investing landscape was likely to be driven by a declining global economy due to continued political unrest and the trade war, adding that the world was "long overudue" a global economic recession.
Looking forward Mr McDermott added: “Broadly the UK market was very under-owned on a global basis.
“We could make a good case for the more domestic part of the UK stock market doing better if all the Brexit stuff gets sorted. So we expect mid and small caps to outperform again this year.”
This view was echoed by Shamik Dhar, chief economist at BNY Mellon Investment Management, and Leigh Himsworth, manager of the Fidelity UK Opportunities fund last month.
Appearing on the FTAdviser Podcast last month, they tipped the FTSE 250 to outperform the FTSE 100 over the start of 2020 following the general election, as small to medium size businesses had most to benefit from a Brexit conclusion.
imogen.tew@ft.com
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