The fund universe is vast. Some invest in specific galaxies, while others pick bright, twinkling stars. Everyone is trying to avoid a black hole. But are the UK's star status funds the best ones for your investments?
To answer this, we’re looking at those funds’ recent returns, their long-term performance and their asset flows over the past decade. So to kick things off, here are the Big Five of active UK equity funds.
By a country mile, the biggest fund domiciled in the UK is Fundsmith Equity. It is currently worth about £23.6 billion, almost four times as big as its number two peer. The fund invests globally but is famously very concentrated. It only invests in 27 stocks so, naturally, more than 50% of the fund is invested in its top 10 holdings. The largest is Microsoft (MSFT), closely followed by PayPal (PYPL).
Speaking of the second largest fund in the UK, Stewart Investor’s APAC Leaders Sustainability fund holds £6.8 billion. The Asia-Pacific, ex-Japan fund’s biggest stock is Mahindra & Mahindra (M&M), which accounts for 7.59% of its 43-stock portfolio (or roughly £540 million in market value).
Liontrust Special Situations is next on our list, with £5.4 billion in assets. Funnily, the fund has a better globe rating than the sustainable APAC fund, although this can be because APAC stocks by nature will have a lower rating due to volatility. Both Shell (SHEL) and BP (BP.) are among the biggest holdings in its 56-stock portfolio.
Interestingly, LF Lindsell Train UK Equity is the fund with the highest globe rating. Nick Train’s fund manages roughly £5 billion in assets, across a concentrated 21 holdings. In fact, 20% of the fund is invested in the top two stocks, Diageo (DGE) and RELX (REL), and 82% of the fund is spread across the top 10.
Lastly, we have Artemis Income, which has core exposure to UK equities with above-market dividend yield. The fund’s holds £4.6 billion, invested across 47 stocks, and it’s biggest holding is BP. Despite this, the value fund has maintained 4 globes.
A note on diversity: the funds have 10 managers between them, none of which is female.
Over the past year, all these funds have taken a beating. Worst hit is Fundsmith, which is down 15.19% this year; Artemis has fared the best, down only 0.26%.
All the funds have done better over the longer term – and the longer the better. When annualised on a five-year basis, all have returned between 4.43% and 10.49%. Over 10 years, this goes up to 16.70% for Fundsmith and 8.77% for Artemis. But do not make the mistake of comparing the two – one focuses on global growth stocks and the other on value stocks and income.
Among advocates, one of the arguments for choosing an actively-managed fund is that, while they can sometimes struggle to beat index funds in periods of market rallies, they should fare better in periods of downturns. This is partly because the fund managers have the option to defend the fund by allocating parts of the portfolio to cash and rotate towards more defensive companies.
But as we can see, the Big Five have not exactly had the best year to date. In fact, a recent analysis found that, overall, European equity funds have not done better than their passive counterparts in the latest downturn. Moreover, higher fees contribute to the equation, and the difference in return outweighs the difference in cost.
Moreover, the funds are not as popular as they once were.
This timeline shows the net fund flows for the five funds over the past decade. And as we click through the different years, we see that 2013 is in fact the only year where all funds experienced net inflows. So far this year, and in 2021, Fundsmith is the only vehicle with net inflows, and we have to go back to 2020 to see another fund doing as well flows-wise.
Fund flows are not always just a popularity contest. Some funds will have been around for a while and matured enough for people to start withdrawing their assets. That said, Fundsmith has only had one year of net outflows – 2019 – and its size is leagues above the rest.
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