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Active UK equity ‘free lunch’ has ended, Neptune boss says

Geffen Robin Neptune 2014

Neptune Investment Management chief executive Robin Geffen says UK equity managers have enjoyed a “free lunch” since the global financial crisis, but it is now over.

Since 2009, 116 out of 121 UK small and mid-cap fund managers have outperformed the index, Geffen says.

Allocation within UK equity funds has also increased from 30 per cent in 2011 to 40 per cent at the start of 2016, according to Morningstar data.

Geffen says: “In our view this free lunch is now over. We’ve lived through a period of low interest rates, low inflation, strong sterling, high consumer and business confidence.”

But the fund manager says that period was an anomaly.

Geffen warns UK equity income funds have also been able to easily outperform, with the level of outperformance rising from 60 per cent in 2009 to almost 90 per cent last year.

However, he warns in the year-to-date only six UK equity income managers have outperformed the All Share – himself included. “There is nothing one off about this, this is going to be a feature going forward.”

Geffen says his UK equity income fund has a large cap bias with a lot of overseas exposure, including HSBC, British American Tobacco and CME.

However, he warns against bond proxies due to their performance being connected to low interest rates. He sold Reckitt Benckiser this year as its dividend was not growing in line with its share price.

“Quality growth is trading at a 45 per cent premium to the wider market. That is another free lunch that is over.”



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  1. “Since 2009, 116 out of 121 UK small and mid-cap fund managers have outperformed the index, Geffen says.”

    So funds with a fundamentally different objective and constituents have beaten an unrelated index? I’m glad we’re getting this kind of quality information from the world of active fund managers.

    The free lunch will hopefully be over following the FCA’s interim report on active and passive fund management in the UK, with some truly eye-opening findings.

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