There are 16 funds in the three UK equity sectors that have made top-decile returns in 2019 but are being researched much less than their average peer, analysis by Trustnet suggests. 
As we have noted on several occasions, the bulk of the research activity of the financial advisers and other professional investors on FE Analytics tends to go into the largest, most popular members of the Investment Association sectors.
In IA UK All Companies, for example, the most heavily researched strategy in 2019 has been the £5.4bn Liontrust Special Situations fund, followed by the £6.7bn LF Lindsell Train UK Equity and £5.7bn Invesco High Income funds.
However, there are several other funds that have generated some of their respective sector’s highest returns this year but have far fewer eyes on them than the giant portfolios mentioned above.
A good example is ASI UK Impact Employment Opportunities Equity, which has assets under management of just £5.9m and only launched in February 2019. It aims for capital growth by investing in companies that “promote and implement good employment opportunities and practices”.
Performance of fund vs sector during 2019
Source: FE Analytics
Between the start of 2019 and 16 December, the fund made a total return of 37.71 per cent (Franklin UK Mid Cap was the only IA UK All Companies member to make more, with 40.09 per cent).
However, it was researched on FE Analytics 2,414 times over the same period – well below the 4,480 research hits for the average member of the peer group.
As the chart above shows, ASI UK Impact Employment Opportunities Equity has performed strongly in recent weeks and rallied hard last week, when the Conservatives won the general election. This is down to the portfolio being exposed to areas that would do well if the economy strengthens, such as financials, industrials and consumer stocks.
Source: FE Analytics Market Intel Tool, FE Analytics
The table above is ranked by 2019 total returns and after the ASI fund come four smaller companies strategies, all of which are at the top of their peer group in 2019 but have been overlooked somewhat by investors on FE Analytics.
This might be down to the fact that they have underperformed in recent previous years. Over the three years to the end of 2018, the average IA UK Smaller Companies member made a 21.34 per cent total return; ASI (AAM) UK Smaller Companies made 14.85 per cent over the same period, M&G Smaller Companies 12.18 per cent, JPM UK Smaller Companies 8.44 per cent and Kames UK Smaller Companies 6.13 per cent.
However, they have rebounded in 2019 as confidence started to grow about the outlook for the UK economy. All four performed especially strongly when the Conservatives won last week’s general election, as this helped to boost confidence in the UK economy and the smaller companies most exposed to it.
In an update over the summer, M&G Smaller Companies manager Garfield Kiff highlighted why the recent past has been challenging for UK smaller companies but why they could improve over the longer term.
“At the time of writing, the UK’s economic outlook is still relatively uncertain due to a lack of clarity about Brexit, while the global economy appears to be decelerating amid a continuation of international trade wars. These factors may weigh on the UK economy, in the short term at least,” he said.
“Longer term, we are more optimistic about prospects for the domestic economy, given the UK’s broadly positive fundamentals of low inflation and high employment. Furthermore, some form of clarity regarding Brexit is expected to emerge in the coming months, which should reduce the present uncertainty.”
Although the clarity in Brexit has been delayed somewhat, many are expecting it now prime minister Boris Johnson has secured a convincing majority. Meanwhile, there are signs that the US and China will reach a lasting agreement on their trade dispute.
While many of the funds on the above list are some of the smaller members of their peer group and could be off investors’ radars because of that, not all are minnows.
Royal London UK Opportunities has a portfolio that is £837m in size. It generated bottom-quartile returns in 2016, 2017 and 2018 as the mid-cap part of the market – to which its portfolio is exposed – suffered from declining investor sentiment.
However, it has rallied as this trend reversed in 2019.
Indeed, many of the strategies on the list that do not focus on smaller companies instead look to the FTSE 250 as one of their main hunting grounds, helping them to jump to the top of their peer groups this year.