After years in the relative doldrums, UK equities have seen an uptick in interest over the past six months courtesy of a renewed appetite for value investing.
The UK stock market’s cyclical and lowly-valued companies have helped its relative performance improve since late 2020. In sterling terms both the FTSE 100 and the FTSE All-Share are up more than 11 per cent this year, returns that are above those achieved by US, European, global and emerging market indices.
Domestic fund buyers remain relatively prudent in responding to this shift. For every sign of renewed interest in UK equity funds, another datapoint highlighting investors’ caution has soon followed.
In keeping with that, the most popular UK growth funds in the country’s model portfolios remain much as they did two years ago.
The top four funds in the chart below – Lindsell Train UK Equity, Liontrust Special Situations, Ninety One UK Alpha and Man GLG Undervalued Assets – are not only the most popular picks by this metric. They also tend to be found in sizeable weightings in those model portfolios, according to research by our sister title Asset Allocator.
Much as passives are used as building blocks in other regions, it is these funds that form the core of most advisers and discretionary fund managers’ UK equity exposures.
That remains the case despite short-term performance proving increasingly mixed. Last month Nick Train apologised for the short-term performance of his Finsbury Growth & Income trust, and his open-ended fund's popularity has taken a slight dip – Liontrust’s strategy now matches it in terms of MPS picks.
But Train’s medium and long-term returns remain strong – and even his 2021 underperformance equates to a healthy 7.3 per cent return – so it is no surprise his fund has staying power.
Model portfolio managers’ long-term thinking is also in evidence elsewhere in the chart. JOHCM UK Dynamic has benefitted more than most from the market rotation seen since last November, and that has rewarded the many holders who stuck by the strategy despite its struggles in early 2020.
Yet there are signs that the change in investor preferences is starting to have an impact on the leaderboard. Popular value plays like Polar Capital UK Value Opportunities and Jupiter UK Special Situations have begun climbing the ranks once again. And booming UK small-cap performance has helped Tellworth UK Smaller Companies, run by former Schroders pair Paul Marriage and John Warren, enter the top 10 for the first time.
By contrast, Majedie UK Equity has fallen out of the top ten after several holders sold out over the past couple of years.
Another new arrival is a microcosm of fund selectors’ changing preferences. While many advisers and DFMs have run sustainable model portfolios for some time now, until last year there were few ESG strategies included in mainstream model portfolios. That changed in 2020, and in the UK Royal London Sustainable Leaders has been the biggest beneficiary.
