You might think the suggestion fanciful. I was forcefully reminded of it when considering the performance of UK growth funds. Despite the success of some well-known equity income funds (such as Jupiter Income), growth funds are still the staple diet of most equity-minded private investors in this country. They make up the bulk of funds in the UK All Companies sector, now the largest of the fund sectors classified by the Association of Unit Trust and Investment Funds (Autif).
Since Autif decided to change its classifications in July, the All Companies sector has become a much broader church. It includes not just conventional growth funds and most tracker funds, but the balanced equity funds formally classified as Growth and Income funds. Confused? If you are, you are not alone. Many fund management companies seem to be confused too, which is why some funds in the All Companies sector still operate with the word Income in their name, though they are no longer classified as income funds.
The traditional distinguishing mark of a growth fund is that its primary objective is capital appreciation rather than the generation of income. In the United States, the counterpoint to "growth" funds has always been "value" funds. The traditional characteristic of a value fund is that it invests primarily in securities which look cheap by comparison to the market. They tend to have either dividend yields which are higher than the average or price/earnings ratios which are lower than the average.
Equity income funds in this country tend to share the first of those characteristics, since they are required to yield more than the market average to qualify for inclusion in that sector. In the US they go further than we do. The industry has largely adopted a nine-box system pioneered by the rating agency Morningstar. This classifies funds into nine styles, measured on two main criteria: the size of company the fund typically invests in (large, medium and small capitalisation) and secondly its investment approach, which broadly labels funds as either growth, value or blended (the latter meaning a bit of both).
Like all classification systems, this has its rough edges, but the classification has stood the test of time and is now almost universally accepted as the industry norm. In this country, we have yet to advance down such a relatively sophisticated route.
One reason is probably cultural. We are less steeped in the language of the stock market in this country than they are in the US. Unless you are familiar with the terminology of investment management styles, you may well be tempted to enquire whether the opposite of a value fund is a zero-value fund - which doesn't really sound that attractive. Income funds sound altogether much more reassuring.
In practice, the differences between investment styles can easily cross over. Many fund managers like to say they are interested in growth and value; and in some cases this is true. What is not in doubt, as the latest Standard & Poor's Fund Research report points out, is that different styles invariably move in and out of favour over time; small-cap stocks have their day, then large-cap stocks have a good run. Growth stocks do well for a while, then value has its run in the sun. Several investment consultants make a lucrative living by analysing and segmenting fund performance and fund styles in ever-greater detail than this.
None of which is much help to the ordinary investor. What is interesting about the markets is that the swings in style have been more volatile. The table shows the relative performance of the two main equity growth sectors (Growth and Smaller Company funds), as measured by Fund Research, against the performance of the various market indices over different time periods to the end of August.
This shows how small- and midcap stocks finally started to outperform the Footsie index of larger companies in the first half of this year. What the table fails to capture is how quickly these periods of sector rotation actually happened. Or how difficult it has been for many fund managers to keep pace with the rate of change.
What to make of all this? Fund Research suggests it may be time we moved to a US-style system of fund classification, which allows greater differentiation between funds. This a good idea. Many investors have no real idea how different the funds are in, say, the All Companies sector, let alone how to measure how well their funds have done relative to their style benchmarks.
The information would be helpful. Sensible long-term investors pick several funds of different styles from a variety of management houses then sit back, hoping it will all work out much the same in the long term (which it tends to do). But two other well-known lines from Ecclesiastes also serve warning to those who feel obliged to analyse things too deeply. One is: "He that diggeth a pit shall fall into it." The other is: "The words of the wise are as goads." Perhaps we should include them too on the Key Features documents.