New research from Willis Owen reveals that eight of the worst-performing UK ‘dog’ funds of 2018 have experienced a significant rebound of up to 19% this year.
The analysis, which looked at funds in the Investment Association’s UK sectors, found that Allianz UK Mid Cap was the third worst-performing fund in 2018, returning -23%, but has bounced back to 19% since the start of 2019 (to 31 May).
Threadneedle UK Smaller Companies was the second biggest gainer ahead of Merian UK Dynamic Equity in third place, boasting returns of 17% and 16% respectively in 2019 recovering from -21% and -19% the year before.
Even man of the moment Neil Woodford, who has recently come under scrutiny for the performance of his flagship UK Equity Income Fund, experienced a modest uptick in performance of 0.32% this year with the LF Woodford Income Focus fund – up from -20%.
Adrian Lowcock, Head of Personal Investments at Willis Owen, said:
‘It is interesting to see the LF Woodford Income Focus Fund appear in the list. This is the version without all the unlisted equity, being more of a core equity income portfolio.
“It shows that Woodford’s performance woes are not only due to holding unlisted stocks. Whilst his views on the British economy have largely been accurate, the fund’s positioning suffered when we reached high levels of Brexit uncertainty, such as in December and again this May, when the Prime Minister announced her resignation.”
The funds in question have recovered from underperformance of up to -24% in 2018 to produce positive returns for investors this year amid a turbulent period for investments – largely stemming from the escalating US/China trade war and the ongoing uncertainty around Brexit.
Lowcock commented: “Only one continues to lose money: the L&G UK Alpha Trust. This was a well-managed fund under Richard Penny, but since his departure the fund was under a caretaker manager before Rod Oscroft took the reins at the start of 2018. He has struggled in the volatile markets – capturing much of the downside but not benefitting when markets have rebounded.
“Overall, the worst performers from 2018 have fared okay in 2019 – a reminder that short-term poor performance is not a good reason to sell a fund.
“The worst performers tended to invest in the more volatile, riskier mid-cap and smaller companies and have unconstrained portfolios that do not follow benchmarks. These types of funds are likely to suffer more in sell-offs driven by short-term changes in sentiment as investors sell first and ask questions later.
“The trigger for the recovery is different for each fund. For example, Merian UK Mid Cap is focused on some of the UK’s most exciting growth companies, which suffered from profit-taking last year as investors became risk averse. But as risk came back on the table, the fund recovered some but not all its losses.”
