The best performing Rated Funds three months after Brexit

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%, the FTSE 100 has delivered 10.3% and the FTSE Small Cap has returned 9.8%. But the FTSE Aim All-Share index delivered 12.7% 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.

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.

Rated Funds: UK Smaller Companies

The two top-performing funds in the smaller companies sector were Liontrust UK Smaller Companies, which has returned 10.3% since 23 June, and Marlborough UK Micro Cap Growth, which delivered 8.8%. However, neither of the two funds managed to outperform the FTSE Aim All-Share index on its strong upward trend.

Rated Funds: UK Equity Income

The second-best performances were achieved in the UK equity income sector, where Evenlode Income led the league with a 12% return. It was followed by Finsbury Growth & Income with 9% and Threadneedle UK Equity Income which returned 8.3%.

Rated Funds: UK Growth

In the UK all companies sector, the FTSE All Share has returned 9.5% since Brexit, while Invesco Perpetual Select UK Equity returned 7.5% and Artemis Alpha Trust returned 7.4%.

Rated Funds: Specialist

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.

Outside of the UK sectors, specialist funds performed well. Axa Framlington Biotech returned 28.4% since the Brexit vote and Biotech Growth Trust returned 28%.

Using volatility

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."

This article was originally published by our sister magazine Money Observer here

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 advise