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Active fund pairs versus the market

Holding both growth and value funds can help a portfolio's overall return
Active fund pairs versus the market
  • Splitting assets across popular growth and value funds can be a good approach
  • A balance can help at market inflection points 

Are you too reliant on quality growth funds? That’s a question many investors have been asking in the past half year or so, with some of the most popular stocks and funds running into trouble. With many parts of the market underwater, it is a reminder of why diversification matters.

For fans of active funds, the concept of pairing funds with different investment styles is enjoying something of a revival. But this can produce mixed results. So to test the theory, we have looked at how some popular growth and value funds, when paired together, have fared against their investment universe – both during market rotations and more generally.

To clarify our methodology, we have taken a fund known for adopting the quality growth style and paired it with a fund known for a value approach. We compared the performance of a portfolio split 50:50 between the two funds versus a relevant index over certain periods, including points when MSCI World Value index has pulled ahead of its growth counterpart and some time periods running to early May.

As with any thought experiment, there are data quirks to consider. We have generally chosen bigger funds to provide examples that you are more likely to hold. This may leave the data skewed to 'survivorship bias' in cases where these funds have performed better in the past, although their size may also have held them back at other times.

It’s also worth stressing that fund managers can lean into investment styles to different extents. For example, some cyclically minded funds go for much 'deeper' value than others. Similarly, funds in the broad quality growth camp can also differ significantly in terms of their process and sector preference.

The periods we have looked at are: the second half of 2016, a resurgent moment for value investors; the final quarter of 2018, when markets sold off and value indices held up slightly better than growth peers; a six-month period which includes the 'vaccine rally' that commenced in late 2020; and the period between September 2021 and 5 May 2022 during which quality growth investors broadly hit the buffers and cyclical assets held up slightly better.

Our results shed some light on how popular active duos have fared when market sentiment shifts. The findings are not always encouraging for specific periods but suggest that active pairings can work out over longer time horizons.

Index performance


Total return (%)
Second half (H2) 2016
MSCI World14.2
MSCI World Growth9.9
MSCI World Value18.5
Fourth quarter (Q4) 2018
MSCI World-11.5
MSCI World Growth-13.4
MSCI World Value-9.3
09/11/20 to 07/05/21
MSCI World12.8
MSCI World Growth7.2
MSCI World Value18.7
01/09/21 to 05/05/22
MSCI World1.2
MSCI World Growth-8.1
MSCI World Value10.6
Source: FE Analytics



Our global pairing brings together two funds which are well known in their respective fields – Fundsmith Equity (GB00B41YBW71) and Schroder Global Recovery (GB00BYRJXP30) which takes a fairly deep value investment approach.

The results are relatively encouraging at market inflection points. As the table shows, a portfolio evenly split between these two funds would have outperformed in the 2016 cyclical rally, the late 2018 sell-off and the vaccine rally – if not in the most recent period. This portfolio's underlying performance has differed from period to period, however. Strong runs for cyclical assets, as happened during our 2016 time period and the vaccine rally, resulted in Fundsmith Equity lagging the MSCI World index, albeit with positive returns.

But Schroder Global Recovery's performance took off at those times with a return of 25.8 per cent in the second half of 2016 and nearly 35 per cent in the period which included the vaccine rally.

PeriodMSCI World total return (%)Global fund pairing total return (%) 
H2 201614.215.5  
Q4 2018-11.5-9.2  
09/11/20 to 07/05/2112.817  
01/09/21 to 05/05/221.2-3.7  
Fund/index1yr (%)3yr (%)5yr (%)10yr (%)
Global pairing2.829.456.9 
MSCI World10.444.871252.9
Source: FE Analytics. Standard performance periods to 05/05/2022

It should be emphasised, however, that value exposure is less of an obvious winner at times of broader market volatility. Both Schroder Global Recovery and Fundsmith Equity made paper losses in the final quarter of 2018, although they fell less than the MSCI World index.

During our most recent time period – September 2021 to 5 May 2022 – Fundsmith Equity racked up a paper loss of 9.7 per cent, while Schroder Global Recovery made a 6 per cent gain and the MSCI World index rose 1.2 per cent.

At a time when you may be wondering whether quality growth shares can continue to deliver the goods as tighter monetary policy comes in, it’s worth noting that a 50:50 split between these two different funds has not been a winning combination versus the index over standard time periods.

Our global split portfolio returned 29.4 per cent over the three years to 6 May 2022 and 56.9 per cent over five years, lagging the index in both instances. You might be minded to have more conviction in one style over another if you have strong views. And the index itself is likely to slowly change in composition if there is a sustained regime change in markets.


UK and Europe

We have taken a similar approach for the UK, pairing Liontrust Special Situations (GB00BG0J2688), a well known advocate of the quality growth style, with Schroder Recovery (GB00BDD2F190) – a deep value fund. We have compared their performance to the FTSE All-Share and FTSE 100 indices.

PeriodFTSE All-Share total return (%)FTSE 100 total return (%)UK fund pairing total return (%)
H2 201610.710.414.4 
Q4 2018-10.2-9.5-9.7 
09/11/20 to 07/05/2118.617.424.6 
01/09/21 to 05/05/222.67.4-3.4 
Source: FE Analytics
Fund/index1yr (%)3yr (%)5yr (%)10yr (%)
UK pairing1.214.132.3159.5
FTSE All Share8.413.524.7102
FTSE 1008.311.932.391.4
Source: FE Analytics

The 50:50 UK active portfolio, like its global equivalent, fared well in the first three of the time periods we used. But more recently it struggled versus the index because Liontrust Special Situations has not performed well, while both the indices and Schroder Recovery are in positive territory. This means that the fund pair is fairly weak versus the indices over the past year, but pulls ahead over longer time periods. What’s notable is that both funds have fared well over longer periods, despite their differing approaches. Schroder Recovery has also soared ahead of what look like fairly cyclical markets during the big value rallies.

We have also looked at Europe pairing the popular BlackRock European Dynamic (GB00BCZRNN30) with Schroder European Recovery (GB0007221889) – two funds with adequate longevity. This pairing has performed less convincingly at inflection points, only outperforming FTSE Europe ex-UK index during the vaccine rally.

BlackRock European Dynamic racked up some big losses at times, especially between 1 September 2021 and 5 May 2022 and in the last quarter of 2018. But the fund's longer-term record remains outstanding and has helped it beat the  Europe ex-UK index over three years and longer.

PeriodFTSE Europe ex UK total return (%)European pairing total return (%)
H2 201612.69.4
Q4 2018-10.5-14.2
09/11/20 to 07/05/2113.416.7
01/09/21 to 05/05/22-12.4-13.9
Fund/index1yr (%)3yr (%)5yr (%)10yr (%)
Europe pairing-4.434.144.9208.5
FTSE Europe ex UK-4.518.623.6138
Source: FE Analytics