The best and worst performing UK portfolios since Brexit

Since the UK voted to leave the EU six years ago today, it has been a volatile journey. Although the vote happened in 2016, a deal was not agreed until late 2020, when the UK finally exited the union on New Years Eve that year.

Getting to that point was fraught with political and social splintering, culminating in Boris Johnson promising to ‘Get Brexit Done’ as prime minister. Outside parliament, labour and goods shortages, immigration concerns and disputes around Northern Ireland played havoc on the UK economy and stock market.

As a result, the UK has been materially out of favour with overseas investors in particular since the vote occurred, with many global managers choosing to stay away from UK uncertainty and taking their investment elsewhere.

Indeed, Investment Week found that the average IA Global fund is now more than a third less invested in the UK than it was pre-Brexit, with the former a key reason for the downgrade.

Average global funds hold a third less in the UK than before Brexit

In this study, we looked at the major UK equity markets, both open and closed-ended to see which portfolios have generated the highest returns since 23 June 2016, and which ones have struggled.

On the open-ended side, Thesis Stonehage Fleming AIM was the strongest performer, making 163.6% during that set time frame, according to FE Analytics data.

The £115.3m fund is run by Paul Mumford and Nick Burchett and invests mainly in the UK alternative investment market (AIM), as well as some small-cap positions.

The lower-cap end is the UK’s main base for growth stocks, polarised from the FTSE 100 space which is dominated by banks, financials and energy stocks, the more value-esque assets.

Because of this make-up, the Thesis fund’s main sector allocation is Information Technology (21.6%), followed by Healthcare (20%), non-typical for a UK fund at first glance.

There were two Liontrust funds in the top 10 – Liontrust UK Micro Cap and Liontrust UK Smaller Companies – which made 127.8% and 93.5%, respectively.

Both are run by the same five strong investment team: Anthony Cross, Julian Fosh, Matthew Tonge, Victoria Stevens and Alex Wedge. Cross and Fosh have run the funds since March 2016, practically the entire time ‘Brexit’ has existed.

Both funds are run under the house’s Economic Advantage Process, seeking out stocks with at least one of three intangible assets: intellectual property, strong distribution or recurring business.

There were four IA UK All Companies funds on the list: MI Chelverton UK Equity Growth, Slater Recovery, Slater Artorius and VT Sorbus Vector.

No IA UK Equity Income funds made the top 10, although this was not the case on the closed-ended side.

Here, three IT UK Equity Income funds made the top 10: Law Debenture Corporation, Allianz Merchants Trust and Shires Income.

Merchants Trust manager Simon Gergel recently told Investment Week that he was taking a bullish stance on energy and mining companies as a play on rising inflation and interest rates. Gergel has run the portfolio since 2006 but the trust itself has been running since 1889.

But much like the open-ended space, smaller companies trusts made up the majority of the best performers, with Harwood Capital Oryx International Growth in the top spot.

The £179.2m trust made 120% since Brexit. It is run by Christopher Mills who takes a ‘buy and hold approach’, preferring a low turnover of small-cap and unlisted names. He is supported by co-manager Nicholas Mills.

Other well-known, outperforming small-cap trusts included JPMorgan UK Smaller Companies investment trust, BlackRock Throgmorton trust, BlackRock Smaller Companies and River and Mercantile UK Micro Cap.

While a small cap strategy worked for these portfolios, it was not always the case as IT UK Smaller Companies also dominated the worst performing trusts since Brexit.

Chelverton Growth Trust was the worst overall, losing 53.5%.

Managers David Horner and David Taylor invest in companies they believe are “at a point of change” in the AIM with a market cap of up to £50m.

Other lagging trusts were JPMorgan Mid Cap, Troy Income & Growth trust and Baillie Gifford UK Growth trust.

Finally, moving back to the open-ended side, the worst performer there was the Jupiter UK Growth fund, down 18.4%.

Manager Chris Smith took over the fund mid-2020 during peak Covid when lockdowns were very depressive on UK stocks returns. The fund mainly invests in the large cap space (61%), investing in major UK brands such as RELX, AstraZeneca, Unilever and Bae Systems.

It was one of seven IA UK All Companies funds in this group, two of which were Invesco funds, the Invesco UK Equity High Income (UK) and Invesco UK Equity Income (UK).

Both Invesco funds are run by Ciaran Mallon and James Goldstone, who also took over management in 2020. The pair apply a similar process to both funds, seeking highly liquid businesses that are undervalued and can deliver both income and returns.

There was only one IA UK Smaller Companies fund at this end of the study, Sarasin UK Thematic Smaller Companies, which lost 9.3% and two IA UK Equity Income funds; SPDR S&P UK Dividend Aristocrats UCITS ETF and ASI UK Income Unconstrained Equity.

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