Interactive Investor

2015 Fund Awards: UK growth

30th June 2015 12:44

Helen Pridham from interactive investor

Best larger fund

CF Lindsell Train UK Equity

Managed by the well-respected Nick Train, Lindsell Train UK Equity was launched in 2006 as an open-ended proxy for the Money Observer Rated Fund Finsbury Growth & Income trust, which Train has managed since 2000.

Like its closed-ended counterpart, Lindsell Train UK Equity has performed exceptionally well over the past nine years, returning 190.2% since its launch to 31 March 2015. This compares to an average of just 68.6% from the Investment Association's UK all companies sector over the same period and makes the fund the fifth best performer overall.

The portfolio reflects Train's penchant for larger companies with strong brands, which he typically invests in with high conviction. Currently Lindsell Train UK Equity consists of just 25 stocks, with the top 10 holdings accounting for over 70% of the portfolio.

All of these are household names: from consumer products manufacturer Unilever (the fund's top holding at 9% of the portfolio), to the London Stock Exchange, Heineken and Burberry. Train rarely, if ever, invests in an unknown company.

The past 12 months has marked a particularly strong spell for Lindsell Train UK Equity, with the fund returning 17.2% in the year to 31 March - more than any other fund in the UK all companies sector. According to Train, this is due in no small part to the recent dramatic fall in the price of oil.

"A lot went right for the fund over the last year, including the continuation of low interest rates and the strength of the US dollar, but the biggest boost to the strategy came from the remarkable fall in the oil price," he says.

"The big, global consumer branded goods companies that are at the heart of our strategy - Diageo, Heineken and Unilever - are clear beneficiaries. Their distribution costs fall with the cost of energy, while billions of consumers will have some extra spending money in their pockets," says Train.

With the oil price set to stay low for the foreseeable future, Train's portfolio should continue to benefit. In the future, Train says he expects the best returns in the fund to be delivered by companies "at the forefront of using digital technology to improve their products and services". His favourite examples include fund platform Hargreaves Lansdown, publisher Pearson, and accountancy software provider Sage.

The 'Acc' share class was monitored for this award, with a three-year return of 80.29%.

Highly commended larger fund

Neptune UK Mid Cap

This fund takes highly commended in the larger UK growth fund category for the second consecutive year. Launched in December 2008, manager Mark Martin has successfully steered Neptune UK Mid Cap through good times and bad and delivered first-quartile returns in every calendar year but one.

Remarkably, this includes 2014 when the fund returned 12% compared to an average of just 0.7% from the UK all companies sector, despite the share prices of medium-sized companies taking a beating throughout much of the year.

Martin attributes his success to the fund's "disciplined investment strategy" structured around three"silos": corporate turnarounds, structural growth and economic recovery.

"By having at least 20% of the portfolio invested in each of these three themes, we seek to limit downside risk. Although in a rapidly rising market this may mean the fund underperforms index gains, it should allow us to generate periods of outperformance when markets are flat, falling or exhibiting volatility," Martin says.

The largest chunk of the portfolio is in consumer products companies, with retailers Carpetright and PZ Cussons as top holdings.

The 'A' share class was monitored for this award, with a three-year return of 82.22%. On Interactive Investor the fund's 'C' share class is available, which returned 85.9%.

Best smaller fund

ConBrio Sanford Deland UK Buffettology General

Winner of this year's best smaller UK growth fund, ConBrio Sanford Deland UK Buffettology General is a refreshing new entrant to Money Observer's hall of award winners.

Consistently outperforming much larger rivals since its launch in March 2011, this tiny £18.5 million fund has delivered 68% over the past three years to 31 March, placing it in the first quartile of the Investment Association's 262 fund-strong UK all companies sector over the period - an impressive achievement for such a minnow.

Keith Ashworth-Lord has managed the fund since inception and, following what seems to be a theme among this year's UK growth winners, takes a high-conviction, concentrated approach to investing. Currently the fund's portfolio contains just 27 holdings, all of which Ashworth-Lord believes in completely.

"The success of the fund is down to getting the investments right. I spend a lot of time researching potential investments and when I find an attractive investment, I invest a meaningful proportion of cash in it," says Ashworth-Lord.

"This is 'focus' investing: concentrating investments in relatively few companies that I think I know a lot about. I firmly believe that investment is a business venture, not a gamble, and it is the companies owned that make money for the investor, not the stockmarket."

Reflecting the strategy of the fund's namesake, investment legend Warren Buffett, Ashworth-Lord says he practises "business perspective investing", which asserts that a share represents a fraction of a real business, so there is no philosophical difference between buying shares in a company and buying the business outright.

Accordingly, the manager focuses on tangible factors such as comprehensible business models, transparent, unleveraged balance sheets and strong cash flow when choosing which companies to invest in.

Since the fund's launch, it has delivered a compound annual growth rate of close to 14% - significantly more than the 8% annual growth delivered by its benchmark, the FTSE All-Share index, over the period. Ashworth-Lord uses the All-Share so he can be free to invest in any company regardless of market capitalisation. The manager also holds 3.5% cash.

The 'A' share class was monitored for this award, with a three-year return of 68.3%.

Highly commended smaller fund

AXA Framlington UK Mid Cap

Like the winner in this category, AXA Framlington UK Mid Cap has been a regular outperformer since its launch, which was also in March 2011. Under the management of Chris St John, the fund has returned 77.6% over three years to 31 March - 35% more than the average UK all companies fund.

This is 10% more than the winner in this category over the period; however, St John has delivered this with slightly more risk, as defined by the fund's three-year Sharpe ratio.

This is perhaps surprising considering St John's more diversified approach - currently the fund has 77 holdings compared to ConBrio's 27 - which arguably goes some way to vindicating Ashworth-Lord's investment views regarding volatility. St John also takes more of a macro-economic approach, as well as focusing on business fundamentals.

Like many other medium and small-sized company funds, AXA Framlington UK Mid Cap has suffered a disappointing 12 months, returning just 4.4% over the year to 31 March compared to 5.8% from the sector.

However, performance has picked up in recent months and St John remains positive on the UK market: "At some point, equity markets will need to digest an interest rate rise and this will certainly provide a major test, particularly given the current market rating. However, company fundamentals remain solid so we see a potential uptick in volatility as an opportunity to buy," says St John.

The 'Z' share class was monitored for this award, with a three-year return of 77.6%.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.