Leading UK equity fund managers revel in risk

He added that the pure contrarian value trend may well have substantially run its course, however, and heading into markets that appeared potentially overbought providing little in the way of downside protection.

In terms of immediate picks, he said that for UK exposure the River & Mercantile UK Equity Long Term Recovery fund looked like a core pick, currently ninth out of the 311 funds in the UK All Companies sector.

Managed by R&M head of equity Hugh Sergeant, the fund is similarly allocated to the Schroders Recovery fund, but with a greater emphasis on small-cap stocks.

The fund sits between the first and the second tier of the top performers – those who have shot ahead with a rampant return to risk appetite. Typical of the raging bulls is the L&G UK Alpha fund, managed by AAA-rated Richard Penny.

The fund, fourth ranked in the table, is 64% invested in AIM stocks and 16% overweight the tech sector. The blue-chips, which are the core strategy of many of his peers, such as Royal Dutch Shell, HSBC and Vodafone, are among his biggest underweights.

The result is heavy volatility and a lack of correlation, which can be demonstrated by the fund’s rapid moves from fourth, third, second and first quartiles in the past 18 months, bouncing to eighth quartile in the past four weeks.

Edward Allen, portfolio manager at Thurleigh Investment, said much of the obvious momentum had now gone from the markets and he would back someone such as Penny who invested flexibly on the basis of their conviction.

With the exception of resource-based stocks such as miners and gas, which Allen believes still have relative value to recover, he said the one-off value play was over.

‘Those who went on a dash for trash at the end of last year have done very well, but as the growth picture plays out flexibility will be the biggest asset,’ said Allen. ‘The best returns will be from the managers who are able to change their style.’