UK funds and trusts have bounced back since ‘Pfizer Monday’

But with returns up over 30%, is it already too late to join the party?

The UK’s road map for the lifting of coronavirus restrictions may be on track, but latest fund purchases from the Investment Association suggests that investors remain to be convinced about the prospects for UK funds.

At least that was the case back in February, when UK funds saw net retail outflows of £1 billion. But while UK home bias has historically been costly, after a sustained period of being in the cold, a UK comeback arguably had to be on the cards at some point.

Research from interactive investor, the UK’s second-largest direct-to-consumer investment platform, suggests that fund and investment trust investors who dipped their toes back into UK waters during November, which includes ‘Pfizer Monday’ on 9 November 2020, are likely to have been rewarded over the last six months – on average at least.

The Association of Investment Companies’ investment trust UK All Companies sector is up 48% and the equivalent IA UK All companies sector is up 31% between 1 November 2020 – 1 May 2021. The AIC UK Equity Income investment trust sector is up 42%, while the IA fund equivalent sector is up 32%. Source: FE Analytics.

Over this six-month period, UK funds and trusts have outperformed global funds and trusts, which have proven much more popular with investors over the past couple of years. Global funds, according to the Investment Association, have been the best-selling sector with retail investors over the past three years.*

From 1 November 2020 to 1 May 2021 global equity income investment trusts returned 25.8% versus 21.1% for global equity income funds, while global investment trusts delivered 21.1% against 20.2% for global funds (Source: FE Analytics). While these are impressive returns, they lag their UK equivalent sectors significantly.

While no UK-focused strategies are listed among interactive investor’s top 10 fund bestsellers over the same time period, 10 make the top 50 cut. MI Chelverton UK Equity Growth is the highest-ranking UK fund on list in 19th position, ahead of Premier Miton UK Smaller Companies in 20th and Marlborough Nano Cap Growth in 21st.

When it comes to investment trusts, 10 UK-focused equity strategies are listed among the top 50 invest trust bestsellers – of which City of London (LSE:CTY) ranks highest in ninth position, followed by Finsbury Growth & Income (LSE:FGT)(18th position) making the top 20 cut.

Kyle Caldwell,Collectives Editor, interactive investor, says: “The investment mantra ‘buy low, sell high’ is very difficult for investors to pull off, but those that did back their home market following ‘Pfizer Monday’ will be patting themselves on the back.

“The vaccine announcements in November have proven to be the shot in the arm UK-focused funds and investment trusts needed after being out of favour for a number of years due to two big headwinds – Brexit uncertainty and then Covid-19 uncertainty.

“UK funds are up around 30% over the past six months (from 1 November 2020 to 1 May 2021), for both the Investment Association UK All Companies and UK Equity Income sectors. Investment trusts, however, have fared better, due to discounts narrowing and the positive impact of gearing in a rising market. The Association of Investment Companies’ UK All Companies sector is up 48.4% and its UK Equity Income trust sector us up 42%. UK smaller companies have also been in fine form. Investment trusts that specialise in this area are up 46% versus 41% for funds. 

“For investors considering buying or adding to their UK fund holdings the question they should be asking themselves is whether or not they are too late to join the party. There’s always a danger of performance chasing when sizing up a fund or investment trust that has enjoyed a strong spell of short-term performance. The thing to remember is that those past returns went to other investors rather than yourself, therefore it is important for investors to assess whether those returns are sustainable going forward.”

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “The UK market has been a perennial underperformer in recent years, but the turnaround since November has been spectacular, and is a reminder that a brave, contrarian approach to investing can reward investors in spades. But it’s a high-risk approach that few of us can afford to put to work, so the key is to have a well-diversified approach and stick to it.

“Whether you choose funds or investment trusts, there are plenty of high-quality options out there. And while I continue to think the UK market has legs, it would be unwise to expect that sort of stellar return to continue. For fund and investment trust investors, 20% exposure to the UK is plenty.”

Notes to editors
*Source: The Investment Association