Recently Asset Allocator covered some of the best-performing global equity funds of 2023 and how allocators fared in picking them.
We thought we'd usher in the new year by looking at the UK equity universe.
The headline figure in our calculations is that 47 per cent of allocator picks beat the FTSE All-Share benchmark last year, compared to just 15 per cent in 2022.
This is all the more remarkable given the All-Share index fared much better last year than in 2022, when it returned just 1.8 per cent, giving allocators plenty of wiggle room to beat its sluggish growth.
And it seems they've done a decent job of it.
The best-performing fund held by our allocators is Artemis UK Select, which returned a solid 13 per cent across 2023.
Two houses rode the wave by buying into the fund this year, taking its total to five.
Artemis UK Select is £1.9bn in size and among its techniques is the ability to employ a short-selling strategy of up to 10 per cent where it sees fit.
As of now it’s chosen to take advantage of the various multinationals parked in the FTSE, with oil giants Shell and BP, plus private equity firm 3i Group comprising its largest three holdings.
Three other popular UK equity funds which did well last year were JOHCM UK Dynamic, which is owned by six allocators we follow, Schroder Recovery, which is owned by four, and Man GLG Undervalued Assets, which is owned by three.
All three funds comfortably outperformed the FTSE All-Share index last year.
But coming in a close second to Artemis UK Select was Mercantile Investment Trust, which is run by JPMorgan and has been around the block a few times, its history dating back to 1884.
The near-140 year old fund is only owned by one allocator we follow but returned 12.8 per cent and tends to focus on stocks outside the FTSE 100, in those it believes have potential to lead the UK market in future.
The firms it holds the biggest faith to come good are private equity group Intermediate Capital, homebuilder Bellway, and Games Workshop, the maker of Warhammer figurines.
Mercantile’s success will come as good news inside the oak-panelled boardrooms where investment trusts operate, after a year of widened discounts for the sector.
On the bright side, Asset Allocator found that our DFMs’ trust discounts are narrowing faster than average. You can read our analysis here.
How does this all square with the mood going into this year then? Our latest pulse check concluded that allocators view UK equities the most optimistically of any region, with 54 per cent feeling positive and only 18 per cent feeling negative.
This is considerably higher than their mood regarding equities in general and is dramatically more confident than their outlook for the US, with just 9 per cent positive here.
However, such lofty ambitions are yet to translate into action among allocators.
Throughout 2023 we covered the decline in average allocations to UK equities in our database. It fell from 15.3 per cent to 14.1 per cent during a year in which many value sectors thrived, and looking back to 2021, the dropoff is even steeper, from 17 per cent.
Perhaps at least the events of last year give allocators some confidence in their fund picks.
