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UK funds and smaller companies – uncovering potential

Posted by: Brian Dennehy
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Membership level: Free
 
Most UK-based investors have their greatest exposure to UK markets. And even if you did not previously, after the UK general election it is fair to say everyone could more easily visualise potential in the UK. It is interesting to see what has happened since the February stock market peak and the global health emergency unfolded.
 
When I say “market peak” I am using the date of the peak in the US index, the S&P 500, on 20th February.
 
Before that date the UK stock market had a decent rally, and there appeared to be much potential in the domestic economy, albeit on a 5 years view – for example, the benefits of greater infrastructure spending do not occur overnight. This is why smaller company funds held up well as we entered February even as the more globally-influenced FTSE 100 index faltered a little. You can see this in table 1, from the election date to 20th February.
 
In table 2 this is broken out further, showing the best UK stock market funds between those two dates – smaller company funds dominate, plus some other funds with a Value-cum-cyclical bias.
 
Table 3 shows what happened after the February peak, at a sector level. Smaller companies are leading in the downturn, just as you should expect. Table 4 focusses on the worst performing individual funds over that same period.
 
Smaller companies certainly feature (four of the bottom 10), but the rest are a mix of recovery and Value funds – the sorts with thoughtful fund managers who actively manage their funds, because they believe they can make a difference. Right now they will be feeling pretty beaten up.
 
Nonetheless these are the sort of funds and fund managers who will be near the top of our buy list once there are reasons to believe the market is bottoming. In that first stage of the recovery we will be doing the opposite of what we normally do – buying beaten up quality funds, not going with momentum. We will be seeking out maximum bounceability. 
 
Much more on that in coming weeks.
 
FURTHER READING
 
 
Table 1
UK Election to Feb 20th peak for S&P
 
Sector/index
Perf %
UK Smaller Companies
9.7
UK All Companies
5.1
UK Equity Income
4.2
FTSE 100
2.8
 
Table 2
UK Election to Feb 20th peak for S&P
 
 
Top 10
   
Fund
Sector
Perf %
Liontrust UK Micro Cap
UK Smaller Companies
15.6
Merian UK Smaller Companies Focus
UK Smaller Companies
14.8
Premier Ethical
UK All Companies
14.7
Threadneedle UK Smaller Companies
UK Smaller Companies
14.3
Premier UK Growth
UK All Companies
14.2
LF Gresham House UK Micro Cap
UK Smaller Companies
13.8
JPM UK Smaller Companies
UK Smaller Companies
13.1
BlackRock UK Smaller Companies
UK Smaller Companies
13.1
LF Miton UK Value Opportunities
UK All Companies
12.9
Merian UK Mid Cap
UK All Companies
12.9
 
Table 3
Feb 20th peak for S&P to now
 
Sector/index
Perf %
UK Smaller Companies
-36.8
UK All Companies
-33.7
UK Equity Income
-33.6
FTSE 100
-26.2
 
Table 4
Feb 20th peak for S&P to now
   
Bottom 10
 
 
Fund
Sector
Perf %
ASI UK Recovery Equity
UK All Companies
-47.6
ASI UK Unconstrained Equity
UK All Companies
-45.6
Aberforth UK Small Companies
UK Smaller Companies
-45.2
Schroder UK Mid 250
UK All Companies
-43.2
Merian UK Dynamic Equity
UK All Companies
-42.3
TM Cavendish Opportunities
UK All Companies
-42.2
Schroder UK Dynamic Smaller Companies
UK Smaller Companies
-41.9
ASI UK Ethical Equity
UK All Companies
-41.7
Merian UK Smaller Companies Focus
UK Smaller Companies
-41.4
VT Teviot UK Smaller Companies
UK Smaller Companies
-41.3

Data notes
UK General election 12/12/2019
S&P 500 peak: 20/2/2020
End date: 25/3/2020
Topic: Market commentary


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