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Standard Life UK Equity Unconstrained - 'great companies aren't always the best investments'

Dominic Rowles | Thu 27 June 2019

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Wesley McCoy says many of the UK's best companies are too expensive
  • He thinks unloved companies have the potential to deliver a greater return
  • The fund's performance struggled in recent years

Our view

Wesley McCoy invests in companies that could benefit from change that's gone unnoticed by other investors. Many have been through a tough time. Perhaps they've released disappointing results, or their managers made mistakes. Either way, he hopes they're capable of a turnaround.

McCoy's an experienced fund manager with the support of a longstanding, well-resourced team. They invest in companies of any size, including smaller ones. This, combined with the fund's relatively small number of investments, increases risk. The fund can be volatile in the short term and we see it as a more adventurous option for exposure to the UK stock market.

The fund's got the potential to do well over the long run but we think there are lots of talented fund managers in the UK All Companies sector. It doesn’t currently feature on the Wealth 50 list of our favourite funds.

When is a great company not a great investment?

The UK's home to many companies whose earnings are expected to grow at a steady pace, whatever happens in the economy. But Wesley McCoy says the best companies aren't always the best investments. This type of business has been popular with investors in recent years and he doesn’t think their share prices have much room for further growth.

He's more interested in companies that are disliked by other investors, and with underappreciated potential for better earnings. This includes companies that are sensitive to the health of the UK economy, so he's focused his attention here.

Pub operator Greene King is an example. Investors worried that a fall in consumer spending would make it more difficult for the company to grow its dividend. But the company has a long track record of growing dividends. McCoy bought some shares in the company when he felt they dropped too low and looked good value compared to competitors. They later rose strongly when it released better results than many expected.

How's the fund performed?

The fund's performance has struggled in recent years as the undervalued companies the manager looks for have generally performed poorly.

Annual percentage growth
May 2014 -
May 2015
May 2015 -
May 2016
May 2016 -
May 2017
May 2017 -
May 2018
May 2018 -
May 2019
Standard Life UK Equity Unconstrained 12.9% -11.5% 9.7% 19.4% -19.0%
FTSE All-Share 7.5% -6.3% 24.5% 6.5% -3.2%

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2019

The past year's been particularly tough.

A number of company-specific issues contributed to the fund's poor performance. An investment in clothing retailer Superdry, for example, performed poorly after the company's managers implemented an unsuccessful revamp which resulted in a collapse in sales and profits. The company's shares were later sold from the fund.

Gambling businesses William Hill and 888 also performed poorly. The manager took the opportunity to add to his investments at lower share prices.

An investment in travel agent TUI performed well though. The manager bought the shares because he thought investors overreacted to news about a defect on the company's planes. He sold the shares at a 20% profit shortly after he bought them.

Standard Life UK Equity Unconstrained Key Investor Information

More about this fund, including charges

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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