Which Stocks Do the Top UK Equity Fund Managers Own?

The very best performing UK equity fund managers have been pushed to the top of the chart by just five stocks Morningstar data reveals

Karen Kwok 10 November, 2016 | 4:26PM
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The best performing UK equity funds in 2016 are top of the pile because they hold mining stocks, according to data from Morningstar Direct.

Standard Life Investments UK Equity Recovery is the best performing fund within the UK equity fund space year to date, gaining 39%. The fund’s top performance is largely due to its mining and natural resources holdings which have rallied significantly this year.

The fund’s largest two holdings are miners Glencore (GLEN), which gained 198.7% year to date and Anglo American (AAL) that rose 298.4% year to date, of which each consists 5.8% of the portfolio. 

Natural Resources company Vedanta Resources (VED), which ranks as the sixth largest stock holding in the portfolio, rose 191.4% year to date. Other miners in the fund, Canadian-based First Quantum Minerals (FM) and Lonmin (LMI) were up 177.7% and 168% respectively.

With the significant recovery in oil prices seen this year, so too have shares of other commodity-related mining companies that gain over the second half of the year. The depreciation of sterling following a Brexit vote also benefitted mining stocks, as many mining and oil producers have revenues earned in US dollar.

BP: Top 5 Stock of Best Performing UK Funds

There are 12 UK equity funds which have risen a minimum of 12% in value year to date – and every single one holds BP (BP.), in their top five holdings. BP has gained 35.5% year to date.

They are Silver Rated Schroder Recovery, Schroder Charity Equity, Bronze Rated Schroder Income, Silver Rated Jupiter UK Special Situations, St James’s Place UK Growth, Bronze Rated Jupiter Income Trust, Bronze Rated Majedie UK Equity, Bronze Rated Liontrust UK Growth, Silver Rated GAM UK Diversified, JOHCM UK Dynamic, Dimensional UK Value Income and Aberdeen UK Enhanced Equity.

The Silver Rated Schroder Recovery fund is the second highest performer among UK equity funds this year, according to Morningstar Direct. The fund has gained 21% year to date. The fund has a 4.7% allocation to BP’s shares and a 3.7% allocation to Anglo American’s shares in its portfolio.

Morningstar analysts said BP is reducing its cost base to survive in a world of lower oil price. Analysts believe that while BP will run a cash flow deficit through 2017, they forecast the company can cover a full cash dividend at $55 oil price per barrel in 2018, thanks to the cost reduction and lower capital expenditure. The stock is currently rated three-star by Morningstar analysts, meaning analysts think the stock is trading at its fair estimate shares values.

Financial Stocks Drag Back Fund Performance

Financial stocks were hammered this year, but top performing UK equity funds still hold a significant amount of the sector’s shares in their portfolios.  

The top performing UK equity fund Standard Life Investments UK Equity Recovery have 4.9% and 4.2% of Barclays (BARC) and Aviva (AV.) in its portfolio, although both stocks were down 13.3% and 12.8% year to date.

The Silver Rated Schroder Recovery fund, Schroder Charity Equity, Schroder Income, St James’s Place UK Growth, JOHCM UK Dynamic, and Dimensional UK Value fund also have Barclays in their portfolios.

Stephen Ellis, director of financial services equity research said Barclays' third-quarter results came in strong on the heels of its recently announced diversification plan. The stock is rated three-star by Morningstar analysts.

The Schroder Recovery fund has 5.4% of Royal Bank of Scotland (RBS)’s shares on top of its portfolio holdings. Despite the fund also has 5% of HSBC (HSBA) in its portfolio, which was up 22.8% year to date, those gains seem to not cover the 38% losses of RBS.

Ellis said RBS faces a litany of legal and regulatory uncertainty, and lawsuits over pre-crisis U.S. mortgage activities that will cost shareholders billions to settle.

RBS's technological infrastructure, built through years of M&A, is also shakier than investors realized and will be costly to clean up, Ellis added. RBS is rated four-star by Morningstar analyst, meaning analysts believe the stock is trading below its shares estimate values. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Anglo American PLC2,203.75 GBX-1.35Rating
Aviva PLC489.75 GBX-0.09Rating
Barclays PLC231.49 GBX0.28Rating
BP PLC456.90 GBX-0.20Rating
Dimensional UK Value GBP Inc18.37 GBP0.22Rating
First Quantum Minerals Ltd16.48 CAD-0.48
Glencore PLC437.25 GBX-1.38Rating
HSBC Holdings PLC668.02 GBX0.06Rating
JOHCM UK Dynamic A Acc3.59 GBP0.03Rating
Jupiter Income Trust L Inc530.56 GBP0.27Rating
Jupiter UK Special Situations L Inc223.24 GBP0.19Rating
Liontrust UK Growth R Inc515.03 GBP0.01Rating
NatWest Group PLC340.00 GBX0.41Rating
Schroder Income Acc126.80 GBP0.08Rating
Schroder Recovery A Acc292.00 GBP0.10Rating

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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