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The dogs fight back: the 2018 worst-performing UK funds with the biggest rebound revealed

Posted by Adrian Lowcock in Press releases category on 03 Jun 19

  • Eight of the worst-performing UK funds of 2018 recovered by up to 19% this year1
New research1 from Willis Owen reveals that eight of the worst-performing UK ‘dog’ funds of 2018 have experienced a significant rebound of up to 19% this year.

The analysis, which looked at funds in the Investment Association’s UK sectors, found that Allianz UK Mid Cap was the third worst-performing fund in 2018, returning -23%, but has bounced back by 19% since the start of 2019 (to 31 May). 

Threadneedle UK Smaller Companies was the second biggest gainer ahead of Merian UK Dynamic Equity in third place, boasting returns of 17% and 16% respectively in 2019 recovering from -21% and -19% the year before.

Even famed fund manager Neil Woodford, who has recently come under criticism for the performance of his flagship UK Equity Income Fund, experienced a modest uptick in performance of 0.32% this year with the LF Woodford Income Focus fund – up from -20%.

Adrian Lowcock, Head of Personal Investments at Willis Owen, said: 

‘It is interesting to see the LF Woodford Income Focus Fund appear in the list. This is the version without all the unlisted equity, being more of a core equity income portfolio. 

“It shows that Woodford’s performance woes are not only due to holding unlisted stocks. Whilst Woodford’s view on the British economy have largely been accurate, the fund’s positioning has suffered when we reached high levels of Brexit uncertainty, such as in December and again this May, when Theresa May announced her resignation.”

The funds listed in the table below have recovered from underperformance of up to -24% in 2018 to produce positive returns for investors this year amid a turbulent period for investments – largely stemming from the escalating US/China trade war and the ongoing uncertainty around Brexit. 

Adrian Lowcock said: “Only one continues to lose money: the L&G UK Alpha Trust. This was a well-managed fund under Richard Penny, but since his departure the fund was under a caretaker manager before Rod Oscroft  took the reins at the start of 2018. He has struggled in the volatile markets – capturing much of the downside but not benefitting when markets have rebounded. 

“Overall, the worst performers from 2018 have fared okay in 2019 - a reminder that short-term poor performance is not a good reason to sell a fund. 

“The worst performers tended to invest in the more volatile, riskier mid-cap and smaller companies and have unconstrained portfolios that do not follow benchmarks.  These types of funds are likely to suffer more in sell-offs driven by short-term changes in sentiment as investors sell first and ask questions later.

“The trigger for the recovery is different for each fund. For example, Merian UK Mid Cap is focused on some of the UK’s most exciting growth companies, which suffered from profit-taking last year as investors became risk adverse. But as risk came back on the table, the fund recovered some but not all their losses.”

Fund 2018 performance (%) 2019 performance (%)
Allianz UK Mid Cap -22.62 19.30
Threadneedle UK Smaller Companies -20.67 17.13
Merian UK Dynamic Equity -19.40 16.00
Quilter Investors Equity -23.70 15.68
Merian UK Mid Cap -21.54 14.57
Rathbone UK Opportunities -19.43 13.4
Artemis UK Select -19.70 12.03
Standard Life Investments UK Equity Unconstrained -21.87 6.30
LF Woodford Income Focus -20.25 0.32
L&G UK Alpha Trust -25.05 -2.80