From the plethora of portfolios making up the UK all companies category, over the past five years, the most consistent performer in both rising and falling markets – has been the Merrill Lynch UK special situations portfolio, according to Bates Investment Services.Over the 60-month term to the end of the first quarter in 2005, the 134m Merrill Lynch fund, run by Richard Plackett, has outperformed 70.59 per cent of time when the index has been positive and for 73.08 per cent of the period when it has been falling. In its research, Bates looked at the number of months that UK all companies funds had outperformed the FTSE All Share index. While Merrill Lynch special situations holds the top spot, the top five is completed by Rathbone income & growth, Fidelity special situations, Schroder recovery and Rathbone special situations. At the other end of the spectrum, the five most consistent underperform- ers over the period exam-ined, again during both rising and falling stock-markets, are CF Canlife general, CF Canlife growth, Royal London UK growth, Legal & General UK stockmarket and TU British. But despite Merrill Lynch special situations making it to the top of the pile, the fund is not on the IFA group’s recommended list. Bates head of investment strategy James Dalby exp-lains that when the group carried out its last full review of the UK all companies sector, the fund came very close to getting on its list but Bates runs a concentrated list (just 12 funds in the UK all companies sector) and inevitably some good funds will be left out in the final cut. “Despite not using his UK special situations fund, we do rate Plackett very highly and we currently recommend his UK smaller companies fund,” says Dalby. Rathbone income & growth, runner-up to the Merrill Lynch portfolio, is, however, one of the port-folios listed as one of Bates’s preferred UK all companies funds. Bates senior investment adviser Paul Ilott believes Rathbone chief invest- ment officer John Chillingworth has deliv- ered remarkably consistent performance from the fund since joining the company in July 2001 and, he notes, with lower volatility than many of his peer group. Ilott says: “Over the past five years, the fund would have made a good core holding for many portfolios, consistently outperforming the FTSE All Share in both rising and falling stock-market conditions. “The consistency in performance is partly due to the lack of bias towards any one style of investing.” With regards to the Schroder UK recovery vehicle, Ilott says: “Like all managers of recovery funds, Schroder’s Ben Whitmore has a strong contrarian approach when selecting stocks. “A contrarian, value-driven approach has worked very well for investors over the past five years so it is no surprise to see that Schroder UK recovery has been one of the most consistent performers in the UK all companies sector in both rising and falling markets. “Over the past five years, it beat the FTSE All Share 67.75 per cent of the time during the 34 months when the index moved higher but still managed to produce positive returns in 10 out of the 26 months when the index moved lower.” Bates concludes that those portfolios that have performed consistently well in the past may have done so because the particular investment environment suited the style of the manager. He notes that, ideally, you need to know more about the economic backdrop during the investment period, whether this is likely to change in the near future and, if so, how this might affect the performance of your funds. He says: “Consistent performance is likely to be preferred by the majority of investors but it can only ever be a partial guide to picking funds.” In recent years, value has been the dominant investment style, with UK value investors outperforming UK growth investors and the FTSE All Share index in 39 of the 60 months up to the end of March 2005, says Ilott. He adds: “Value also beat growth in each of the last eight months of 2004. It is therefore not surprising to see fund managers who use predominantly value-driven styles performing consistently well over the last five years.” Ilott says that notably, those funds that have consistently outperformed the index on a month-by-month basis over a given period will not necessarily be among the very best performers overall, adding that some consistent performers may regularly beat the index but by only a relatively small margin, while other less consistent funds might beat the index by a far greater margin but only occasionally. In addition, according to Bates, only some 20 per cent of funds have been continually managed by the same manager over the past five years.