Almost three months after the UK voted to leave the EU, we assess the top-performing Money Observer Rated Funds in the UK and beyond. Perhaps surprisingly, the UK's smallest companies have outperformed both UK growth and UK equity income over the period.
Since 23 June the FTSE All-Share index has returned 9.5 per cent, the FTSE 100 has delivered 10.3 per cent and the FTSE Small Cap has returned 9.8 per cent. But the FTSE Aim All-Share index delivered 12.7 per cent since the Brexit vote. In August, the collective value of the Alternative Investment Market (Aim) broke the £80 billion mark for the first time since February 2014.
Smaller companies tend to be sensitive to their domestic economy, as they are in an earlier stage than their mid- or large-cap peers. This is why small caps suffered in the run-up to the EU referendum and also in the immediate aftermath, when markets began to expect a slowdown or even a recession in Britain.
TOP-PERFORMING FUNDS AND TRUSTS
They have now bounced back, helped by a recovery in broader risk appetite and improved market sentiment.
That has been driven by hopes for central bank intervention, in the form of lower interest rates and more quantitative easing, and possibly government intervention via fiscal stimulus in due course.
The two top-performing funds in the smaller companies sector were Liontrust UK Smaller Companies, which has returned 10.3 per cent since 23 June, and Marlborough UK Micro Cap Growth, which delivered 8.8 per cent. However, neither of the two funds managed to outperform the FTSE Aim All-Share index on its strong upward trend.
The second-best performances were achieved in the UK equity income sector, where Evenlode Income led the league with a 12 per cent return. It was followed by Finsbury Growth & Income with 9 per cent and Threadneedle UK Equity Income which returned 8.3 per cent.
In the UK all companies sector, the FTSE All Share has returned 9.5 per cent since Brexit, while Invesco Perpetual Select UK Equity returned 7.5 per cent and Artemis Alpha Trust returned 7.4 per cent.
In both the UK equity income and the UK growth sectors, funds with a high weighting to UK-listed large-cap multinationals have benefited from sterling's drop in value.
When asked why many of the active UK managers have not outperformed the corresponding indices, Adrian Lowcock, investment director at Architas, says: 'I think the main reason for this is that active managers will have been using the volatility caused by the result to pick up stocks they think have oversold; some of these stocks may take longer to recover and lag the broader market.
'On the flip side, managers are less likely to pick the companies which rallied following the vote, as they either already owned them or realised it was too late to jump on the bandwagon. Ultimately in the short term managers need to lag the market if they are to find value and beat it longer term.
'They are also not entering the market with a clean sheet on performance, so their positioning before the result could act as a drag on performance. But in the long run, if their stock-picking skills are up to scratch, then they should outperform.'