UK – Growth fund managers were severely tested by market volatility during the 12 months to August 1, with both mainstream and small cap funds struggling to match their respective benchmarks ,according to the latest report from Standard & Poor’s.

S&P says the median return for mainstream funds lagged the FTSE All Share index by 2.6 percentage points, while the smaller companies sector median fund fell short of the FTSE Small Caps (ex Investment trusts) index by 2.1 percentage points.

The ratings agency adds that against uncertain economic and market backgrounds, managers in general have become more defensive, giving greater weight to “value” considerations such as balance sheet strengths and actual earnings rather than predicted income.

However, it notes that relative outperformance has not automatically followed the switch from momentum growth to defensive value positioning. A flexible approach to market factors, such as successive interest rate cuts, and adapting sector exposures has been crucial, says the firm.

In view of the fluctuating fortunes of the market and the resulting scope for gains and losses, performance disparity within the sector was significant.
The leading mainstream UK Growth fund led the back marker in a sector of 287 funds by a substantial 66%.

James Tew, Standard & Poor’s European director of research, comments:
“ Recent performance in the UK Growth sector has been disappointing, as many managers have found it hard to keep pace with rapidly changing market conditions. However as our report identifies there are fund managers taking a pragmatic approach in sector and stock selection that have achieved consistent outperformance in the widely different investment scenarios existing over recent years. No doubt careful selection of an active manager and the management approach can achieve significantly better than median returns.”