The universe of funds is vast. Some invest in specific galaxies, while others choose bright, twinkling stars. Everyone is trying to avoid a black hole. But are the UK’s flagship status funds the best for your investments?
To answer this, we look at these funds’ recent returns, their long-term performance, and their asset flows over the past decade. So, to start, here are the top five active UK equity funds.
A country mile away, the largest UK-domiciled fund is Fundsmith Equity. He is currently worth around £23.6billion, almost four times as much as his number two counterpart. The fund invests globally but is deemed to be highly concentrated. It only invests in 27 stocks so naturally over 50% of the fund is invested in its top 10 stocks. 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. Mahindra & Mahindra (M&Ms), which represents 7.59% of its 43-stock portfolio (equivalent to around £540m at market value).
Liontrust Special Situations is next on our list, with £5.4 billion in assets. Interestingly, the fund has a better global rating than the sustainable APAC fund, although this may be because APAC stocks will inherently have a lower rating due to volatility. Both shell (SHEL) and BP (BP.) are among the largest holdings in his 56-stock portfolio.
Interestingly, LF Lindsell Train UK Equity is the highest rated fund in the world. Nick Train’s fund manages around £5 billion in assets, spread over a concentration of 21 holdings. Indeed, 20% of the fund is invested in the first two stocks, Diageo (CEO) and RELX (OER), and 82% of the fund is distributed among the top 10.
Finally, we have Artemis Income, which has core exposure to UK equities with an above-market dividend yield. The fund holds £4.6bn, invested in 47 stocks, and its largest holding is BP. Despite this, the value fund retained 4 globes.
Note on diversity: the funds alone have 10 managers, none of whom are female.
Over the past year, all of these funds have taken a beating. Worst hit is Fundsmith, which is down 15.19% this year; Artemis fared the best, down just 0.26%.
All funds have done better over the long term – and the longer the better. When annualized on a five-year basis, all returned between 4.43% and 10.49%. Over 10 years, this rises to 16.70% for Fundsmith and 8.77% for Artemis. But don’t make the mistake of comparing the two – one focuses on global growth stocks and the other on value and income stocks.
Among proponents, one of the arguments in favor of choosing an actively managed fund is that while they can sometimes struggle to beat index funds during a market rally, they should fare better. during a downturn. This is partly because fund managers have the ability to defend the fund by allocating portions of the portfolio to cash and shifting to more defensive companies.
But as we can see, the Big Five haven’t exactly had their best year yet. In fact, recent analysis found that, overall, European equity funds did no better than their passive counterparts during the last recession. Also, higher fees contribute to the equation, and the difference in performance outweighs the difference in cost.
Also, funds are not as popular as they used to be.
This timeline shows the net fund flows for the five funds over the past decade. And looking through the different years, we see that 2013 is actually the only year where all funds had 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 do as well in terms of flows.
Cash flows are not always just a popularity contest. Some funds have been around for a while and have matured enough that people are starting to withdraw their assets. That said, Fundsmith has only had one year of net outflows – 2019 – and its size is miles above the rest.
