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Bates puts risk in focus

The performance of most focus funds is worth the higher risk compared with mainstream funds but the gap is narrowing, says Bates Investment Services.

The company’s research looked at 20 focus funds and found that 17 of the funds had relative outperformance to the UK mainstream fund from the same company.

In relative terms, the performance of the average focus fund has been nearly twice as good as the equivalent mainstream fund.

But the research shows that the average focus fund in the survey has been almost 21 per cent more volatile than the mainstream fund.

However, Bates says that three of the focus funds – Rensburg UK select growth, New Star UK alpha and Newton UK opportunities – have shown lower volatility since launch than the mainstream funds while managing to outperform them comfortably.

On a risk/reward basis, the gap between focus and mainstream funds has narrowed. Six months ago, Bates found that for each 1 per cent extra unit of relative risk take by a focus fund it generated 29 per cent greater performance than the mainstream fund but that figure has fallen to around 9.5 per cent.

Senior investment adviser Paul Illot says: “Focus funds invest in a relatively small number of holdings so their success relies even more heavily on the skills of individual fund managers. This means that we are bound to see divergence in performance for focus funds, depending on fund manager expertise and timing of investments into either defensive or more economically sensitive stocks.”


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