The best active funds this year

Equities are bouncing back and most markets have climbed a wall of worry this year. The FTSE All-Share index was up by 4.6 per cent between the start of the year and 4 May, and European equities are approaching a 10 per cent sterling total return, as the chart shows. UK large caps are faring well, as are Japanese and US stocks. But Asian and emerging markets have continued to struggle.

Active funds, however, tend to have mixed fortunes when it comes to keeping pace with a broad market rally. Although there are good long-term options (see 'Funds to ride the European Rally'), very few active European equity funds have managed to outpace the FTSE Europe ex UK index's gains so far this year. By contrast, a good number of UK and global funds have managed to beat relevant indices.

Broadly speaking, there are two types of outperformer: some of the rare strong performers of 2022 have continued to hold up, while other funds have bounced back from very recent lows. So it’s worth looking more closely at where and how active funds have outpaced the rally of recent months.

UK funds

In good news for fans of domestic equities, around half of the funds in the Investment Association and Association of Investment Companies UK All Companies sectors have beaten the FTSE All-Share so far this year. A number of different funds have ridden the wave but a few trends are worth observing.

Many of the value-style investing funds that held up well in 2022 have continued to deliver the goods. For example, between the start of the year and 4 May, Ninety One UK Special Situations (GB00B1XFJS91), the fund once associated with value stalwart Alastair Mundy, led its peer group with a total return of more than 13 per cent. Artemis UK Select (GB00B2PLJG05) is sitting on a nearly 10 per cent gain, with Schroder Recovery (GB00B3VVG600) and Jupiter UK Special Situations (GB00B4KL9F89) each delivering returns of more than 7 per cent.

But, as is often the case with value funds, returns vary over a longer time frame. The Ninety One fund performed well last year in nominal terms, with a 14.3 per cent return, but still only sat in the middle of its peer group in terms of relative performance. It was a similar story for Artemis UK Select. However, Schroder Recovery and Jupiter UK Special Situations fared well in both periods.

It’s worth noting some of the sector preferences of these funds. Ninety One UK Special Situations had a big allocation to the consumer discretionary sector at the end of March, accounting for just under a third of its portfolio, with 21.4 per cent in financials and 14.6 per cent in industrials. Jupiter UK Special Situations had a smaller 17 per cent allocation to consumer discretionary names and a broader spread of sector allocations more generally, with 16.5 per cent in financials, 10.9 per cent in industrials and 9.9 per cent in energy at the end of March.

It’s not just value funds that have done well from the UK market, however. Quality-oriented funds, which held up relatively well in 2022, have continued to grind out some decent returns. For example, brand-focused LF Lindsell Train UK Equity (GB00BJFLM156) made an 8 per cent return between the start of the year and 4 May, and the fund's end of March commentary noted that some of its chunky positions have played out well. The fund's manager, Nick Train, saw major positions such as Relx (REL) and Burberry (BRBY) hit all-time highs, with London Stock Exchange (LSEG) and Sage (SGE) also enjoying strong share price performance.

TB Evenlode Income (GB00BD0B7D55), another fund with an onus on quality, has also fared well.

It’s notable that some of the hard-hit growth portfolios have continued to struggle. Names such as Slater Growth (GB00B7T0G907), CFP SDL UK Buffettology (GB00BF0LDZ31) and IFSL Marlborough Special Situations (GB00B907GH23) are down so far this year, suggesting another potential buying opportunity for investors focused on solid longer-term returns.

Global and beyond

The focus on quality appears to have worked well in a global context too, with global funds run by Lindsell Train and Evenlode also holding up well so far in 2023. The strong performance of big brands is evident here too, with names such as Fidelity Sustainable Consumer Brands (LU1033662914), Pictet Premium Brands (LU0448836519) and exchange-traded funds (ETFs) that track consumer discretionary shares doing well.

Some of the prominent growth funds that took a hit in 2022 have roared back to life with the likes of Fundsmith Equity (GB00B41YBW71) and LF Blue Whale Growth (GB00BD6PG563) posting big gains. Some commentators have attributed much of the recent global market rally to a handful of tech stocks, yet this pair of managers have performed well while taking different approaches to the sector. The Blue Whale team notably sold out of ‘Faang’ US large-cap tech stocks last year but Fundsmith Equity’s manager, Terry Smith, has been picking up some of these in the past year.

Some global value funds such as Schroder Global Recovery (GB00BYRJXL91) have also continued to deliver the goods.

The returns of certain industry sectors have played a big role in the performance of US and global equities funds. The strong bounce-back in tech shares has driven index trackers and ETFs focused on the Nasdaq, with such passive funds focused on consumer discretionary shares also performing well.

Funds wthat invest in other markets have also experienced big bounce-backs. Among European equity funds, BlackRock Greater Europe Investment Trust (BRGE) has racked up big gains after its share price fell around 30 per cent in 2022. The trust made huge returns in 2019, 2020 and 2021, although you might ask whether funds such as this with a focus on structural growth stories can fare as well in a higher-rate environment. The trust’s investment team noted in a commentary at the end of February that stock selection had driven good returns, although on a sector basis its preference for industrials and lower allocations to consumer staples and real estate aided performance. The trust was also underweight financials, with relatively big allocations to tech and healthcare.

Few other active Europe equity funds managed to outpace FTSE Europe ex UK index, the few exceptions including JPMorgan European Growth & Income (JEGI) and Man GLG Continental European Growth (GB00B0119487).