Research by Wellian showed that a majority of funds (75%) within the IA UK All Companies sector outperformed the All Share and 90% outperformed the FTSE 100.
“Even though the FTSE 100 and FTSE All Share are in negative territory for the year, relatively few funds within the UK All Companies sector are suffering the same fate,” said Philbin. “For example, due to the constituent components within the FTSE 100, the index has been particularly badly hit by the oil price slide over the past few months.”
“For the last couple of years, in an easy interest rate environment it’s been really easy to make money,” Philbin continued. “It was all about picking the low hanging fruit.”
He added we are likely to be working within a more ‘alpha’ rather than ‘beta’ market in 2016, making it important to place more emphasis on being highly selective of the funds within particular asset classes.
“Previously people would say: let’s invest in the UK market and FTSE, blindly. But that [the FTSE] had a large exposure to the oil sector and lost a lot of value,” he added.
Instead, what is needed today is to look deeper at a fund’s performance, according to Philbin. Regarding choosing fund managers for next year, he takes a pragmatic approach. “The difference between 2015 and 2016 is a night’s sleep, whereas we choose fund managers on a medium to long term basis- around three years ahead,” he said.
“Interest rates will rise in the UK next year, which will cause uncertainty and volatility. Companies that don’t deliver will be slaughtered,” he added. Philbin also points to a larger degree of concentration within funds. “Fund managers need to know their holdings inside and out. The ones that will do well know all of their holdings very well.”
