Something much more significant has been happening in markets progressively, over the last three years, which has made conditions increasingly difficult for our long-term, valuation-oriented investment approach. The road towards long-term outperformance in a volatile asset class is rarely a smooth one, but the extent of the difference between the performance of the funds and that of the broader UK market has been unusually extreme.
During this time, global equity markets have moved decisively into the late stages of this bull market, with conditions becoming increasingly momentum-driven. Momentum investing involves buying assets when they have risen in price, and selling assets when the price has fallen, with little or no regard paid to the fundamental value of those assets. It is the anti-thesis of our fundamentally-anchored investment approach which will, as a result, tend to under-perform in such conditions.
In the UK, this momentum has manifested itself in a narrow fixation on resource-related companies and other large Asian-exposed businesses, seen as beneficiaries of a reflationary global growth scenario that we simply did not (and do not) believe in. In the three years to 31 March 2019, more than two-thirds of the total return delivered by the FTSE All Share index came from just ten stocks, all of them large index constituents which have very little to do with the UK economy.