20
FUND SELECTOR UK EQUITIES
Top ranked funds Assets under management
“
While there are no
formal restrictions on
active stock weights,
no single stock,
sector or style factor
will generally amount
to more than 10% of
the active risk in the
portfolio
”
Top 10 UK equity funds by assets under management
3-year 3-year 3-year 3-year 3-year 3-year M’star Fund Dom
% chg Alpha Beta R² Sharpe volatility Ratings size (£m)
iShares FTSE 100 -17.87 0.01 0.98 0.99 -0.13 6.76 ★★★★ 3,532.42 Ireland
Coutts UK Eq Idx S1 -23.97 -0.14 1.00 1.00 -0.15 6.89 ★★★★ 1,293.77 Ireland
BlackRock UK Idx Flex Acc -17.84 0.02 0.98 1.00 -0.13 6.76 ★★★★ 671.74 Ireland
Coutts UK Specialist Equity S1 -25.01 -0.16 1.01 0.98 -0.15 7.01 ★★★ 463.45 Ireland
Hang Seng UK Index A -24.13 -0.17 0.97 0.97 -0.15 6.8 ★★ 331.61 Caymans
TT Intl UK Equity -19.84 0.02 1.01 0.95 -0.13 7.11 – 244.71 Ireland
SEI GMF Quantitative UK Eq Instl £ N/A N/A N/A N/A N/A N/A – 241.82 Ireland
BGF United Kingdom A2 £ -20.76 -0.05 1.03 0.96 -0.14 7.27 ★★★ 236 Lux
SEI GMF Fundamental UK Eq Instl £ N/A N/A N/A N/A N/A N/A – 199.37 Ireland
db x-trackers FTSE 100 N/A N/A N/A N/A N/A N/A – 187.37 Lux
FUND SELECTOR’S
COMMENT PETER
TOOGOOD, INVESTMENT
SERVICES DIRECTOR,
OBSR
It is worth noting that the
table of top largest funds is
heavily populated by index
tracker funds. There are a
number of possible explanations
for this. While
small and mid caps performed
strongly in 2009 –
indeed outperforming their
large counterparts by a significant
margin – when
measured over the last
three years, large caps have
outperformed. This is further
evidenced by the fact
that the list of best over
three years funds is dominated
by products that
have a large cap bias.
Traditionally, many
active managers have been
able to add alpha primarily
through the selection of
winners in the mid and
small cap space, as these
stocks are generally less
researched and tend to
have stronger growth profiles.
So it may be that
trackers have outperformed
in some cases due to the
inability of active managers
to add value lower down
the cap scale over the past
three years.
Several observations can
be made about the performance
of UK equity
funds over the past three
years. First of all, large caps
as measured by the FTSE
100 TR were virtually flat
over the period, while midcaps
as measured by the
FTSE 250 TR fell 8% and
small caps as measured by
the FTSE Small Cap declined
22%. Interestingly, the starting
PE multiples were
respectively 13.4%, 16.2%
and 18.5% – proving how
important your starting valuation
is.
The performance of
financials was a key driver
of overall returns, with the
FTSE All Share CR index
declining by in excess of
Top funds – 3-year risk and return
Return (%)
5 Jan ’07 – 5 Jan ’10. Bid to bid, $, gross income, no cap. Source: Morningstar
-15
-20
-25
BlackRock UK Idx Flex Acc
iShares FTSE 100
Coutts UK Eq Idx S1
Hang Seng UK Index A
TT Intl UK Equity
BGF United Kingdom A2 £
Sector average
Coutts UK Specialist Equity S1
-30
6.0 6.5 7.0 7.5 8.0
Standard deviation (%)
To 5 Jan ’10. Bid to bid, $, gross inc, no cap. Source: Morningstar
14%, while the ex financials
equivalent rose by 2%
over three years. With
financials accounting for
30% of the index weighting
on the 29 Dec ’06, and
declining by nearly 50%
over three years.
Aside from financials,
the managers who went
very defensive were actually
hurt in aggregate as both
telecommunications and
utilities did not act as
expected in an overall
decline. Conversely, the
FTSE Basic Materials Index
was driven primarily by the
theme of emerging markets
growth and significantly
outperformed, rising 36%
versus 14% for the FTSE All
Share.
Finally, over the period,
high yielding stocks as
measured by the FTSE 350
Higher Yield Index
declined by 24.3% versus a
2.6% drop as measured by
the FTSE 350 Lower Yield
Index. Once again, the
banks are largely responsi-
Top 3 funds by AUM vs index
-60
Jan ’07 Jun Dec
Source: Morningstar
INTERNATIONAL ADVISER [www.international-adviser.com] FEBRUARY 2010
20
0
% -20
-40
Coutts UK Eq Idx S1
ble for this disparity.
Returning to specific
funds, noteworthy among
the only three active funds
here is the BGF United
Kingdom Fund, which is
managed by James
Macpherson, who heads
the UK equity team at
BlackRock.
Macpherson assumed
responsibility for the management
of the fund in
April 2008 and the product
is a core UK equity offering
with at least 50% of the
stocks by value selected
from BlackRock’s core list.
While there are no
formal restrictions on active
stock weights, no single
stock, sector or style factor
will generally amount to
more than 10% of the
active risk in the portfolio.
Though the fund’s performance
has consistently
ranked within the second
quartile of the peer group,
it has failed to outperform
the index since its inception
in 2004.
iShares FTSE 100
Jun ’08
FTSE AllSh TR £
Dec
Jun ’09
Dec
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