Fund of the week: ‘Uninvestable’ is a buy signal

Last year, anyone who had the nerve to invest in company sectors seen by many investors as toxic was rewarded handsomely. Ed Legget, who runs the Standard Life Investments UK Equity Unconstrained fund, was one of 2012’s best proponents of this strategy.

His £511m fund came out on top in the Chelsea Financial Services New Years honours list. Legget returned 46% in 2012 against a mere 6% for the FTSE 100 index. Over three years his fund is up 63% and over five years by 90%, so this was no one-off. How did he do it?

As The Mail on Sunday notes, Legget invests in stocks considered deeply unpopular by other managers. “When people use the word ‘uninvestable’, we think it’s a buy signal,” comments Legget. The banking sector provided several of his star performers – Lloyds Banking Group rose 77% and Barclays gained 41%.

Elsewhere he did well from mining stocks such as Vedanta – fears of a Chinese slowdown didn’t stop the stock rising 48% from its July low. As David Cumming, head of equities at Standard Life Investments, puts it: “We are not afraid to buy into contentious areas.”

Such an approach carries risks. That solid five-year performance hides some big dips – 2008 was particularly grim (as you can see from the chart). There’s another problem too – the annual charge of 1.8%, which translates into a total expense ratio (TER) of 1.91%, is quite steep.

If you’re seeking a similar but cheaper fund, says FE Trustnet, try PFS Chelverton UK Equity Income. The TER is 1.25%, the yield is 5.23% (versus 4.21% for Standard Life) and the fund is up 66% over three years.

Contact: 0845-279 3003 (Standard Life); 0845-305 4217 (PFS Chelverton).

Standard Life Investments UK Equity Unconstrained fund

Standard Life UK Equity Unconstrained fund

Name of holding % of assets
Smiths (DS) 5.0%
Int’l Personal Finance 4.8%
Lloyds Banking Group 4.2%
Bodycote 4.2%
Barclays 4.0%
Howden Joinery Group 3.6%
Yule Catto 3.6%
GKN 3.4%
Afren 3.2%
EasyJet 3.2%