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UK funds review – another quarter dominated by coronavirus

A look at how the UK economy and stock market is coping, and a review of how our UK-focused Wealth Shortlist picks have performed.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Covid-19 has been centre stage for most of 2020, and the three months to 30 September were no different.

Early signs in July suggested the pandemic was finally coming under control in the UK. But new infections, hospital admissions and, tragically, deaths are on the rise again.

Boris Johnson announced his intention to impose a second lockdown on Saturday evening. More details are due to be published today when parliament vote on the proposal of a second national lockdown. But if passed, lockdown will start on Thursday.

How's the UK economy fared?

The UK was officially in recession. In fact, the UK economy shrank a record 21.8% in the first half of 2020.

Growth’s been coming back in recent months, boosted by the continued lifting of lockdown measures. Government policies like the 'Eat Out to Help Out' scheme and temporary VAT cuts for the hospitality and leisure sector also encouraged spending.

There’s been some good news for workers as Chancellor Rishi Sunak pledged to extend the furlough scheme. Employees of companies forced to close by law, because of coronavirus, will have 80% of their wages paid by the government until December.

Despite the Chancellor's support there have already been hundreds of thousands of redundancies. And lots more are planned.

The threat of mass job losses could be enough to throw the recovery of the economy off course. If people are scared they’ll lose their jobs, they'll put off big spending.

Uncertainty around our future trading relationship with the EU is also holding our economy back. Businesses are delaying big spending decisions until there’s more clarity. This could cause a further drag on the growth of the economy.

What about the stock market?

The UK stock market's fallen 19.9%* so far in 2020, while the IA UK All-Companies sector fell 18.7%*. That means the average fund outperformed the broader UK stock market by 1.2%.

Medium-sized companies were the worst performers, followed by smaller ones. Big firms held up a bit better, but still lost money. Past performance isn’t a guide to the future.

Funds investing in faster-growing companies (usually measured by earnings or cash flow), otherwise known as 'growth' companies, did better. Investors tended to like these companies for their more defensive characteristics, like relatively stable earnings and more reliable dividends.

On the other hand, 'value' focused funds invest in unloved companies with the potential to recover. They performed poorly.

Most sectors have lost money so far this year. But pharmaceutical and biotechnology businesses were a notable exception. They've benefited from renewed investor interest in light of the pandemic. That’s because their products and services are normally needed regardless of the outlook of the economy.

Technology companies also held up better because lots have been able to operate as usual, despite the restrictions of the pandemic.

In contrast, travel & leisure businesses were among the worst performers. Widespread travel bans and the closure of national borders have cost the travel industry dearly. Meanwhile oil & gas businesses were impacted as worldwide lockdowns crippled demand for oil.

Chart showing FTSE All-Share sector performance so far in 2020

Scroll across to see the full chart.

Past performance is not a guide to the future. *Lipper IM to 30/09/2020.

The UK stock market has a big weighting to areas that performed poorly, like oil & gas and financials. It also has less than other markets in areas that performed well, like technology. That’s why it’s significantly underperformed the broader global stock market so far in 2020.

How fund managers have reacted

We met a number of fund managers through video calls over the past three months. One of those was Richard Bullas, who recently took control of the Franklin UK Mid Cap fund following the retirement of former manager Paul Spencer. Bullas has recently found opportunities among companies hit hard by the lockdown – those he thinks have the potential to recover strongly from here.

Bakery food producer Greggs is an example. The company was forced to shut all of its stores during lockdown, but most have now reopened. While another lockdown will force their stores to close again, Bullas still thinks it remains a solid business in a good financial position.

It's always disappointing when an experienced fund manager steps down. But we think the fund is in good hands with Bullas, we’re comfortable for it to stay on the Wealth Shortlist. We’re monitoring funds on the list and we’ll keep investors updated if our views change.

See our latest detailed analysis of the fund

We also met Francis Brooke and Blake Hutchins, managers of the Troy Trojan Income fund. Dividends have been cut for a few of the fund's holdings – it’s likely to impact the fund's yield. But the managers aren't tempted to invest in lower-quality companies that are currently promising a higher yield.

They prefer to top up investments in high-quality companies that pay a lower, but hopefully more sustainable, yield with the potential to grow over the long term.

How have Wealth Shortlist funds performed?

Our Wealth Shortlist selections have delivered mixed performance over the past year, relative to the broader UK stock market. We usually expect this from the range of funds on the list. If all of your funds in a sector are performing well at the same time, they're probably investing in similar areas. That's great when those areas are in favour, but can be painful when they're not.

A diversified approach means investing with managers who have a variety of strengths, styles and areas of focus.

This article isn’t personal advice. If you're not sure if an investment is right for you, please ask us about our advisory services.

All investments will rise and fall in value, so you could get back less than you invest.

UK Growth

The best-performing Wealth Shortlist fund in the UK Growth sector was AXA WF Framlington UK. It beat the performance of the UK stock market and its peers in the IA UK All Companies sector, although it still lost money.

We put the fund's performance down to the manager being able to pick outstanding companies, regardless of size or sector. We think his growth-focused investment style also boosted returns.

The weakest Wealth Shortlist performer was Fidelity Special Situations. Alex Wright, the fund's manager, invests in companies that often go ignored by other investors. Maybe they've missed a profit target, or the management team made some unpopular decisions. Either way, in Wright’s view, they must be capable of a recovery.

This value-style approach has been out of favour, and the fund underperformed both the broader UK stock market and its peers in the same sector over the past year. This is disappointing, but we're encouraged by it outperforming the index of value-focused UK companies over the period.

Annual % growth Sept 2015 - Sept 2016 Sept 2016 - Sept 2017 Sept 2017 - Sept 2018 Sept 2018 - Sept 2019 Sept 2019 - Sept 2020
AXA WF Framlington UK N/A 16.5% 3.1% 5.9% -7.0%
Fidelity Special Situations 13.2% 19.1% 6.3% -3.1% -22.5%
LF Majedie UK Equity 13.1% 13.5% 2.8% -2.9% -13.9%
Liontrust UK Growth 25.7% 11.5% 9.4% 3.0% -11.0%
Unicorn Outstanding British Companies 17.8% 6.3% 13.1% -5.9% -9.2%
FTSE All-Share 16.8% 11.9% 5.9% 2.7% -16.6%
IA UK All Companies 12.1% 13.8% 5.6% 0.1% -13.0%

Past performance is not a guide to the future Source: Lipper IM to 30/09/2020.

N/A - full year data unavailable.

Please note the Liontrust UK Growth and LF Majedie UK Equity funds invest in Hargreaves Lansdown plc.


Find out more about AXA WF Framlington UK, including charges

AXA WF Framlington UK Key Investor Information


Find out more about Fidelity Special Situations, including charges

Fidelity Special Situations Key Investor Information


Find out more about LF Majedie UK Equity, including charges

LF Majedie UK Equity Key Investor Information


Find out more about Liontrust UK Growth, including charges

Liontrust UK Growth Key Investor Information


Find out more about Unicorn Outstanding British companies, including charges

Unicorn Outstanding British Companies Key Investor Information

UK Equity Income

The picture isn't rosy for income-seekers in 2020. Lots of historically big dividend payers made the decision to cut this year. Studies suggest total UK dividends will fall at least 39%.

It wasn’t all bad news though. Some businesses were surprised about the scale of the economic recovery in recent months and took the decision to reinstate dividends quicker than expected.

On the whole, UK Equity Income funds haven’t held up as well as UK Growth funds over the past year. Lots of equity income funds tend to focus on companies in the oil & gas and financials sectors. They’ve historically paid relatively high dividends, but struggled more as a result of the pandemic.

In contrast, equity income funds tend to invest less in the technology sector because of the lower dividends on offer. Not investing so much in technology businesses, which have held up relatively well, proved painful.

Despite this headwind, our picks still did relatively well. All but one in the UK Equity Income sector outperformed the broader UK stock market and their peers in the IA UK Equity Income sector over the past year. But they still lost money.

The top-performing Wealth Shortlist fund in the UK Equity Income sector was Troy Trojan Income. The managers invest in a small selection of stable UK businesses, which have endured through thick and thin over the long term. The team's more cautious investment style meant the fund offered some shelter for investors' money.

The Jupiter Income fund didn’t do quite as well as Ben Whitmore's value-focused investment approach remained out of favour.

However he's one of the most experienced managers investing the way he does. All fund managers go through periods where their investment style is out of favour, but lots recover and go on to deliver strong performance over the long term. The manager's plentiful experience and successful track record give us confidence in the fund's long-term prospects. Although there are no guarantees.

Annual % growth 30/09/2015 - 30/09/2016 30/09/2016 - 30/09/2017 30/09/2017 - 30/09/2018 30/09/2018 - 30/09/2019 30/09/2019 - 30/09/2020
Artemis Income 12.0% 12.6% 4.8% 4.7% -15.0%
Aviva Investors UK Listed Equity Income 12.8% 10.6% 4.5% 3.0% -15.1%
Jupiter Income 21.8% 11.0% 6.3% -2.9% -26.6%
Marlborough Multi Cap Income 0.6% 13.1% 4.1% -0.2% -13.8%
Threadneedle UK Equity Income N/A N/A 4.8% 0.9% -12.5%
Troy Trojan Income N/A N/A N/A 8.1% -8.4%
FTSE All-Share 16.8% 11.9% 5.9% 2.7% -16.6%
IA UK Equity Income 11.3% 10.7% 3.5% -0.4% -17.3%

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2020.

N/A - full year data unavailable.

Find out more about Artemis Income, including charges

Artemis Income Key Investor Information


Find out more about Aviva Investors UK Listed Equity Income, including charges

Aviva Investors UK Listed Equity Income Key Investor Information


Find out more about Jupiter Income, including charges

Jupiter Income Key Investor Information


Find out more about Marlborough Multi Cap Income, including charges

Marlborough Multi Cap Income Key Investor Information


Find out more about Threadneedle UK Equity Income, including charges

Threadneedle UK Equity Income Key Investor Information


Find out more about Troy Trojan Income, including charges

Troy Trojan Income Key Investor Information

UK Small and Mid-sized Companies

Marlborough UK Micro-Cap Growth was the best-performing fund in the UK Small and Mid-sized Companies sector of the Wealth Shortlist, rising an impressive 9.9% over the past year*. Among the fund's top performers was digital advertising and marketing business S4 Capital, which rose more than 180%. Past performance isn’t a guide to the future.

Lead manager Giles Hargreave is stepping back from full-time fund management in January 2021. But we retain conviction in the broader team, which has an excellent long-term track record.

Franklin UK Mid Cap was the weakest performer in the sector, although it focuses almost entirely on medium-sized UK businesses, which underperformed their smaller counterparts. Our analysis suggests the manager's stock picking held back returns, but we continue to have conviction in the fund's long-term prospects.

Annual % growth 30/09/2015 - 30/09/2016 30/09/2016 - 30/09/2017 30/09/2017 - 30/09/2018 30/09/2018 - 30/09/2019 30/09/2019 - 30/09/2020
Franklin UK Mid Cap N/A 20.7% 7.9% 8.0% -18.3%
Marlborough UK Micro-Cap Growth 12.4% 30.7% 12.9% -8.2% 9.9%
TB Amati UK Smaller Companies 20.1% 31.4% 18.0% -5.0% 5.8%
FTSE Small Cap (ex. Investment Trusts) 10.5% 17.8% 0.7% -7.8% -12.7%
FTSE 250 (ex. Investment Trusts) 8.6% 14.2% 4.2% 0.2% -15.3%
IA UK Smaller Companies 7.9% 24.8% 10.7% -6.9% 0.6%

Past performance is not a guide to the future. *Source: Lipper IM to 30/09/2020.

N/A - full year data unavailable.

Find out more about Franklin UK Mid Cap, including charges

Franklin UK Mid Cap Key Investor Information


Find out more about Marlborough UK Micro-Cap Growth, including charges

Marlborough UK Micro-Cap Growth Key Investor Information


Find out more about TB Amati UK Smaller Companies, including charges

TB Amati UK Smaller Companies Key Investor Information


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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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