Top 25 British Fund Managers:

Best of British 2016

Our Best of British list once again shows that UK active fund managers can beat the market. This will be a welcome boost for UK investors post Brexit vote and with interest rates being so low, and it could help those feeling less confident about where to put their money.

The 2016 list features a new number one and more UK success stories. It also features industry veterans and skilled fund managers who have demonstrated the ability to consistently outperform through different market cycles, showing that there is good reason to be optimistic about investing in the UK right now and that over the long term, quality comes to the fore.

Beating the benchmark

This year’s top 25 fund managers have beaten their respective benchmark, achieving an overall average return of 7.9% pa compared to 5.4% pa for the FTSE All Share over 10 years. Refer to the table on Top 25 Fund Managers for all past performance

Income and small/mid cap focused fund managers have outperformed – taking seven of the top ten spots in the list and 13 overall. In fact small/mid cap fund managers stood out; there are five on the list (four in the top ten).

There is also a new number one with Mark Slater, fund manager of MFM Slater Growth, debuting at top spot having met all the qualifying criteria for the first time this year. Neil Woodford has climbed from ninth last year to fifth this time around. However, despite the move up the table, Woodford’s performance over the last 10 years has been surpassed by other managers such as Michael Lindsell and Nick Train, who run CF Lindsell Train UK Equity, and Anthony Cross & Julian Fosh, managers of Liontrust UK Smaller Companies.

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We want to make sure that you're comfortable with the risks of investing, so please remember that the value of your investments can go down as well as up and you may not get back all the money you put in. Past performance of investments is not a reliable indicator of future performance. If you're unsure about the suitability of a particular investment or think you need a personal recommendation, you should speak to a suitably qualified financial adviser.

Each fund is unique and hence exposed to different levels of risk. Some are relatively low risk, whilst others can be very risky and those will only be appropriate for more sophisticated investors.

The highlights

  • Core, skilled managers – We refer to experienced managers as core. Many of the core managers in the list are industry veterans who have stuck to their process throughout market ups and downs. They ride out the difficult times to deliver long-term outperformance, and while value and growth managers perform differently at different times, over the long term quality comes to the fore
  • Income – Successful UK equity income managers tend to invest across the market cap range and have a focus on dividend growth over time
  • Mid and small cap – These parts of the market are under researched and faster growing. Good active managers can exploit these inefficiencies over the long term, although they can go through periods of underperformance during shorter time periods
  • Sustainable – Sustainable managers are increasingly competing with more mainstream UK equity funds in terms of performance. There are three sustainable funds on the list this year; what’s good for your health can also be good for your wealth
  • TD Recommended Funds – Seven managers are also in our Recommended Funds list, including Mark Slater, manager of MFM Slater Growth, which is top of the list. The Recommended funds list is selected on a more qualitative basis and includes veteran managers, those who work for boutique firms and some up and coming managers who don’t yet qualify for the Best of British list as well as access to other regions and asset classes.

Best of British in numbers

  • As a group, TD Best of British fund managers returned 7.9% per annum over 10 years
  • In comparison, the 10-year return from the FTSE All Share was 5.4% per annum
  • Six new entries into the list – including a new Number 1
  • Nine core and skilled managers
  • Eight income managers
  • Seven funds from TD’s Recommended Funds list
  • Five mid and small-cap managers
  • Three managers of sustainable funds.

So what is the list made up of?

Core managers

We noticed a number of experienced managers (core managers as we refer to them), adopting either a value or a growth approach, managed to outperform over the long term. This was interesting because it showed that both investment strategies were beating the benchmark.

In the chart we have used AXA Framlington UK Select as our example of a growth fund and Investec UK Special Situations as our value fund.

In the aftermath of the global financial crisis we can see both slightly beating the FTSE All Share but value investing growing at a stronger rate. This perhaps represented the many contrarian opportunities out there that value fund managers – or Alistair Mundy in this example – would have targeted.

As we see them both grow and pull away, noticeably from the FTSE All Share, growth takes over from value. The main learning from this is that, whilst both investment approaches differ, they are both beating the benchmark in the long term.

Income Funds

In an environment of modest growth and low interest rates income investors are increasingly seeking income from UK equities. UK equity yields currently exceed the yield on 10 year gilts, and have been shown to provide income which is consistent and grows over time. This looks particularly favourable versus other sources of income over the long term.

Many British companies have been increasing their dividends year-on-year, in fact the second quarter of 2016 was a record quarter for UK company dividends.

These dividends constitute a large portion of total returns, and for investors who don’t need to take the income reinvesting those dividends can boost the overall return from an income fund. It's worth remembering dividends aren't guaranteed, however you can see that Best of British fund Royal London UK Equity Income, for example, has significantly outperformed the FTSE All Share index over 10 years.

Sustainability

Sustainable investing is all about making the world a better place while still generating a good investment return – a case of what’s good for your health also being good for your wealth. Returns from sustainable funds Kames Ethical Equity and Royal London Sustainable Leaders, both of which are in the Best of British list, demonstrate investing sustainably does not have to hinder your returns, indeed those companies with sustainable business practices in many cases are performing better than those without such as focus. These funds are now competing on an equal footing with other UK equity funds and delivering performance ahead of the benchmark index.

Small Cap Effect

Over the long term small-cap companies tend to outperform their large-cap counterparts: they are typically at an earlier stage in their development and have greater potential for growth. This does usually come with more volatility, though, and in the short term there can be periods where small caps underperform. This happens particularly in times of market stress, such as those seen this year amid the uncertainty caused by the EU Referendum, when people often retreat to the relative safety of large, blue-chip companies.

The market for small and mid-cap companies is under-researched, underinvested and generally less efficient than the market for large caps. This creates some great opportunities for skilled active fund managers, who can exploit these inefficiencies in order to produce superior returns relative to the market. You can see a number of small-cap funds feature prominently in our Best of British list.

The cut off point for a manager to qualify for inclusion was 1 January 2006. The performance data has been run from 1 July to 30 June each year thereafter, concluding on 30 June 2016. The ten year past performance charts reflect this period.

Expand each row to find more information about each fund and, most importantly, to see which sector the fund is outperforming against.

# Fund manager Fund Morningstar rating Annualised return (%) Sector outperformance (%) Category
1 Mark Slater MFM Slater Growth Bronze 12.2 7.1 Mid/Small

Slater, who co-founded Slater Investments in 1994, launched the fund in 2005. He invests in a concentrated portfolio of companies across the market cap scale which he believes to be attractively priced and exhibit good growth potential.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016.

2 Michael Lindsell & Nick Train CF Lindsell Train UK Equity Gold 11.5 6.3 Core

The pair established Lindsell Train in 2000. They seek companies with unique and strong franchises which can prosper through a number of business cycles. Turnover is very low, with positions only sold if the managers no longer consider a company to be of sufficient quality.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

3 Anthony Cross & Julian Fosh Liontrust UK Smaller Companies Bronze 11.7 4.4 Mid/Small

Both managers have a wealth of experience investing in small-cap companies. Their process focuses on the importance of intangible assets and how key employees are motivated and retained. The fund has large active positions, and therefore tends to have a very different performance profile to the benchmark and its peer group.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

4 Francis Brooke Troy Trojan Income Silver 9.3 4.0 Income

Troy has a culture based on capital preservation, strong risk-adjusted returns, and steady long-term capital and income growth. Brooke has been consistent in his approach through market conditions both favourable and unfavourable to his style. The fund is a relatively concentrated portfolio of quality companies which have to meet strict criteria before being considered for investment.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

5 Neil Woodford CF Woodford Equity Income Bronze* 9.0 3.8 Income

Woodford is one of the UK’s most experienced equity income managers. The fund aims to deliver a positive capital return while growing income, and Woodford has proved willing to stick to his strategy even during periods of poor performance.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016. Five years past performance data not available as this fund has been running since 2 June 2014

* Since we carried out this research, this fund has beeen updgraded to a Silver Morningstar rating.

6 John Wood JOHCM UK Opportunities Silver 8.6 3.7 Core

Wood has more than 25 years’ investment experience and has stuck to his investment approach through multiple market cycles. The portfolio features stocks across the equity style spectrum, and Wood’s willingness to sell aggressively, and his bias towards quality stocks, have helped the fund in the long term.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

7 Mark Barnett IP UK Strategic Income Bronze 8.6 3.7 Income

Barnett has managed the fund since January 2006 and is a skilled UK equity investor. He has a long-term focus and a contrarian style, mixing a high-level macro view with bottom-up stock picking, and copes well with the large amount of assets he is responsible for.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016. Five years past performance data not available as this fund has been running since 31 March 2014

8 Harry Nimmo SLI UK Smaller Companies Silver 10.9 3.6 Mid/Small

Having run this fund since its launch in 1997, Nimmo is a highly experienced small-cap investor. While his process has led to strong long-term performance, the fund’s quality growth tilt, with valuation a secondary consideration, can at times cause performance issues.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

9 Daniel Nickolls Old Mutual UK Smaller Companies Gold 10.5 3.2 Mid/Small

Nickolls is an experienced small-cap investor who benefits from the input of the wider Old Mutual team, including Richard Buxton. He seeks companies for the fund that have the ability to grow earnings faster than average over time, the scope to generate a positive surprise, or the potential to be re-rated relative to the market.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

10 James de Uphaugh & Chris Field Majedie UK Equity Bronze 8.4 3.2 Core

The fund is structured into four sub-portfolios; three large cap and one small cap, with each manager given the freedom to run their sub-portfolio as they deem appropriate. The common philosophy is the desire to be pragmatic and flexible. The fund has delivered consistent returns across different market environments with relatively low volatility.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

11 Martin Cholwill Royal London UK Equity Income Silver 8.4 3.0 Income

Cholwill is a seasoned investor with experience in UK equity income investing through a number of economic cycles. He seeks to identify companies with strong business models and sound finances and which can deliver dividend growth over time, preferring those with good free cash flow yields.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

12 Mike Fox Royal London Sustainable Leaders Bronze 7.2 2.0 Sustainable

Fox, who has run the fund since 2003, looks for businesses with sustainable credentials and where longer-term growth prospects have been mispriced. He is supported by the ESG team, which has been integrated into the wider Royal London investment group.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016.

13 Matt Hudson Schroder UK Alpha Income Bronze 7.3 2.0 Income

Hudson has run the fund since its launch in 2005. He positions the fund in line with where he feels the market is in the business cycle. This is reflected in a weighting to seven different buckets: commodity cyclicals, consumer cyclicals, industrial cyclicals, growth, financials, growth defensives and value defensives.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016.

14 Audrey Ryan Kames Ethical Equity Silver 6.9 1.7 Sustainable

Having been involved with the ethical strategy since joining Kames in 1997, Ryan oversees a stable and robust process. The fund uses an ethical screening process, which leads to a bias towards mid- and small-cap stocks versus the FTSE All Share index. It has delivered consistent returns with lower volatility across different market environments.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

15 Nigel Thomas AXA Framlington UK Select Opportunities Gold 6.7 1.6 Core

Thomas is one of the market’s most experienced and talented managers. His investment philosophy emphasises diversification via a multi-cap approach, with a focus on medium and smaller companies. The long-term, high-conviction approach can lead the fund’s performance to differ significantly from its peers.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

16 Adrian Frost & Adrian Gosden Artemis Income Gold* 6.6 1.3 Income

The pair are highly experienced and have consistently applied a sensible, tried and tested approach. With its considerable size, the fund tends not to have the flexibility to invest further down the cap scale, unlike many peers. Gosden left the group at the end of June 2016, but Frost has committed to at least three more years on the fund and the group plans to recruit an experienced manager as a replacement.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

* Since we carried out this research, this fund has beeen downgraded to a Bronze Morningstar rating.

17 Richard Buxton Old Mutual UK Alpha Silver 6.2 1.0 Core

Buxton is a hugely talented UK equity manager with many years’ experience. His established and proven process combines stock-level analysis with top-down insights, taking a long-term approach to identifying undervalued companies often with a contrarian angle. His approach typically leads to outperformance in rising markets but lags in falling markets.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

18 Alastair Mundy Investec UK Special Situations Gold 6.1 1.0 Core

Mundy is a seasoned and talented manager who has achieved considerable success across a variety of market conditions. He has a deep value, contrarian approach, seeking companies whose share prices have fallen at least 50% relative to the market. Mundy also places importance on dividend yield, which has helped reduce volatility of returns.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

19 Jan Luthman & Stephen Bailey Liontrust Macro Equity Income Bronze 6.2 0.9 Income

Bailey’s understanding of the equity market and company analysis dovetails with Luthman’s macro views and insights. A focus on certain parts of the market via themes can lead the fund to have significant active positions at a sector level. The team has shown it can add value through both top-down economic themes and stock selection.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

20 Derek Stuart Artemis UK Special Situations Gold 6.0 0.8 Core

A highly experienced manager, Stuart runs the fund with a small- and mid-cap bias, seeking companies which are unloved or undervalued, or undergoing change. Stuart has managed the fund since 2000 and has demonstrated the ability to add value in a variety of market conditions, although performance can be volatile.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

21 Carl Stick Rathbone Income Bronze 5.8 0.6 Income

Stick is an experienced manager who has sensibly evolved his approach. He has managed the fund since 2000 using a value strategy, seeking stocks with healthy yields which can grow their dividends by at least the rate of inflation. His approach has typically resulted in a significant portion of the fund being in smaller-cap companies.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

22 Stephen Adams Kames UK Equity Bronze 5.7 0.6 Core

Adams has more than 25 years’ investment experience and is supported by a well-resourced team of analysts and fund managers. The portfolio is constructed with awareness of risk compared with the FTSE All Share benchmark, with divergence from that benchmark limited for stocks and sectors. Long-term performance is strong, although there have been shorter periods of underperformance.

View Fund Buy Fund

Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

23 Lesley Duncan SLI UK Ethical Bronze 5.6 0.4 Sustainable

Experienced investor Duncan has run the fund since 2004. She and her team use both fundamental analysis and a proprietary quantitative model which assesses companies based on 13 factors including value, momentum and balance sheet-related variables. All stocks are subject to an ethical screening process that includes both positive and negative screens.

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Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

24 Mark Costar JOHCM UK Growth Silver 5.5 0.3 Core

Costar uses a clear, well-executed process which he has used throughout his career. His analysis is focused on what drives a share price and he attempts to determine what is already priced in and what is yet to be recognised. Given his distinctive style performance can be volatile, but the fund has a strong long-term cumulative performance record.

If you want to buy this fund, just get in touch.

View Fund Buy Fund

Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

25 Richard Newbery & Alistair White Aberforth UK Small Companies Silver 7.4 0.1 Mid/Small

Investment decisions are made in a collegiate manner with no single named manager on Aberforth’s funds. The firm is a specialist UK small-cap investor, favouring undervalued companies. The fund’s value tilt means it can underperform when growth is driving the market, but the managers have rigidly stuck to their approach and long term returns are strong.

View Fund Buy Fund

Past performance is not reliable indicator of future results. This chart is of all investment classes, new and old. For more information, please see the Key Investor Information Document. Source: Morningstar as of 1 July 2016

The cut off point for a manager to qualify for inclusion was 1 January 2006. The performance data has been run from 1 July to 30 June each year thereafter, concluding on 30 June 2016. The ten year past performance charts reflect this period.

The methodology

The quantitative nature of our Best of British analysis provides a true picture of how UK fund managers are performing, especially at a time when the UK’s longer-term future has been doubted and the ability of active fund management has been challenged.

This is the second year we have produced our Best of British research.

To assess a manager’s performance we used a methodology that allowed us to measure their skill over and above the return from the market – often referred to as their alpha. We also measured them against their respective IA sector averages and respective benchmark.

We analysed funds in the Investment Association’s (IA) three main UK equity sectors:

  1. UK All Companies
  2. UK Equity Income
  3. UK Smaller Companies.

To qualify, each manager must have a 10-year track record running the same fund, or two funds managed consecutively in the same style. The cut-off launch date for funds to qualify was 1 January 2006 and the data was run from 1 July to 30 June each year, concluding on 30 June 2016.

Their funds must outperform both their respective IA sector average and benchmark over 10 years, demonstrating that the manager is adding genuine returns above the sector's performance. All funds in the list have a Morningstar Analyst Rating of Gold, Silver or Bronze, and a minimum of £100m in assets under management. Funds must be available on a number of platforms including TD Direct Investing.

To compile the annualised return for each fund we used the share class with the longest track record. Performance was measured over 10 years to give an annualised average of how the fund has performed. The graph shown under each manager’s name is for combined share class, old and new. Note: only the new share class of the fund is available via the TD Direct Investing platform.

Past performance of each sector

How can you use the Best of British list?

Combining some of these funds, together with those in other asset classes, could help with constructing a balanced, diversified portfolio. To find out more about how to invest in funds via TD Direct Investing click here. You can also learn more about our Recommended Funds list and some of the themes we are focusing on including sustainability by reading our Summer Investment Outlook.

The Best of British list aims to help investors to analyse the track records of fund managers by looking at how they have performed in their sector over the past 10 years. It is based purely on quantitative analysis of past performance which is not necessarily a guide to how a fund will perform in the future. Inclusion in this list does not automatically mean we believe investors should consider investing in the funds currently run by these managers.

The cut off point for a manager to qualify for inclusion was 1 January 2006. The performance data has been run from 1 July to 30 June each year thereafter, concluding on 30 June 2016. The ten year past performance charts reflect this period.

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