UK funds and smaller companies – uncovering potential

Most UK-based investors have their greatest exposure to UK markets. And even if you did not previously, after the UK general election it is fair to say everyone could more easily visualise potential in the UK. It is interesting to see what has happened since the February stock market peak and the global health emergency unfolded.

 

When I say “market peak” I am using the date of the peak in the US index, the S&P 500, on 20^th February.

 

Before that date the UK stock market had a decent rally, and there appeared to be much potential in the domestic economy, albeit on a 5 years view – for example, the benefits of greater infrastructure spending do not occur overnight. This is why smaller company funds held up well as we entered February even as the more globally-influenced FTSE 100 index faltered a little. You can see this in table 1, from the election date to 20^th February.

 

In table 2 this is broken out further, showing the best UK stock market funds between those two dates – smaller company funds dominate, plus some other funds with a Value-cum-cyclical bias.

 

Table 3 shows what happened after the February peak, at a sector level. Smaller companies are leading in the downturn, just as you should expect. Table 4 focusses on the worst performing individual funds over that same period.

 

Smaller companies certainly feature (four of the bottom 10), but the rest are a mix of recovery and Value funds – the sorts with thoughtful fund managers who actively manage their funds, because they believe they can make a difference. Right now they will be feeling pretty beaten up.

 

Nonetheless these are the sort of funds and fund managers who will be near the top of our buy list once there are reasons to believe the market is bottoming. In that first stage of the recovery we will be doing the opposite of what we normally do – buying beaten up quality funds, not going with momentum. We will be seeking out maximum bounceability. 

 

 

 

 

 

 

 

 

Data notes