Only five funds in the Investment Association universe appear to be on track to deliver their fifth year in a row of top-quartile returns, research by FE Trustnet shows.
It’s no secret that 2018 has been a difficult year for investors to navigate, thanks to the US-China trade war, the Federal Reserve’s rate-hiking programme, Brexit, signs of lacklustre economic growth and other concerns.
Against this backdrop, most Investment Association fund sectors have failed to generate a positive return, on average. FE Analytics shows that just six of the 35 Investment Association peer groups (after excluding the money market sectors) are in positive territory this year.
IA Technology & Telecommunications leads with a 6.34 per cent total return, followed by IA North America (5.94 per cent) and IA North American Smaller Companies (4.37 per cent). IA European Smaller Companies sits at the bottom of the table with a 12.41 per cent loss.
As we approach, the end of the year FE Trustnet has looked for funds that were not only top-quartile in their sector in each of the past four full calendar years but appear to be on track to repeat this in 2018.
After filtering 3,908 funds on this criteria, just five made it through. Below, we take a closer look at them – although it has to be kept in mind that past performance is in no way a guide to future returns.
TB Amati UK Smaller Companies
Starting with the fund with the lowest 2018 total return, we have TB Amati UK Smaller Companies. This £202.2m fund lost 5.71 per cent in the 2018 (to 7 December 2018) but this was sufficient to keep it in the IA UK Smaller Companies sector’s top quartile.
The five FE Crown-rated fund is run by FE Alpha Manager Paul Jourdan, with David Stevenson and Anna Wilson as co-managers. The approach behind the portfolio looks for companies that have competitive advantages and strong management teams, with holdings including Diversified Gas & Oil, Sabre Insurance and IG Group.
Performance of fund vs sector and index between 1 Jan 2014 and 7 Dec 2018
Source: FE Analytics
The FE Invest team, which includes TB Amati UK Smaller Companies on its Approved List, said: “The fund has shown a tendency to outperform over the longer run, beating both the market and sector peers from 2014 to 2017.
“Typically it has not kept up with the fastest market rallies, such as those in 2005 to 2007 and 2012 to 2014, but correspondingly has protected investors better when the market has fallen. Stock selection has been and continues to be the key driver of performance.”
TB Amati UK Smaller Companies has an ongoing charges figure (OCF) of 0.94 per cent and is yielding 0.80 per cent.
Jupiter Monthly Income
The next fund that seems to be on track for fifth year in its sector’s top quartile is Jupiter Monthly Income. Richard Curling’s £208m fund is down by 1.15 per cent over 2018 to date.
The fund, which has an FE Crown rating of five, aims to generate a high level of sustainable income with prospects of capital growth through a portfolio of investment trusts. Top holdings at the moment include European Assets Trust, Schroder Oriental Income and Sequoia Economic Infrastructure Income.
Performance of fund vs sector between 1 Jan 2014 and 7 Dec 2018
Source: FE Analytics
The chart above shows how the fund has significantly outperformed its average IA UK Equity & Bond Income peer over the period covered by the research. Our data also shows it has been the sector’s best-performing member over one, three, five and 10 years.
When it comes to income generation, an initial investment of £10,000 made at the start of the period we’ve reviewed would have led to £2,544 in income payments over the time since.
Jupiter Monthly Income has a 0.95 per cent OCF and is yielding 4.70 per cent.
Royal London Sustainable World Trust
Next up is FE Alpha Manager Mike Fox’s £524.9m Royal London Sustainable World Trust; its 0.44 per cent return over 2018 so far puts it in the top quartile of the IA Mixed Investment 40-85% Shares sector.
As its names suggests, the five FE Crown-rated fund is built around companies advocating positive change in areas such as healthcare and climate change. This is the oldest sustainable fund managed by Royal London.
Performance of fund vs sector between 1 Jan 2014 and 7 Dec 2018
Source: FE Analytics
This is another fund on the FE Invest Approved List. The team said: “Fox has a long track record of managing socially responsible investment [SRI] funds. As head of sustainable funds at Royal London for many years, he knows the investment process perfectly and has proved his stockpicking skills over time.”
The portfolio has a bias towards developed markets, with 37.6 per cent of assets in the US and 32.4 per cent in the UK. Microsoft, Google owner Alphabet and Visa are the three largest holdings.
Royal London Sustainable World Trust has a 0.77 per cent OCF; it yields 1 per cent.
Vanguard UK Government Bond Index
Within the IA UK Gilts sector, a passive fund is on track to achieve a fifth straight year in the top quartile: Vanguard UK Government Bond Index has made 0.59 per cent in 2018 so far.
The fund tracks the Bloomberg Barclays UK Government Float Adjusted Bond index consists of bonds of any maturity that are issued by the UK government.
Performance of fund vs sector and index between 1 Jan 2014 and 7 Dec 2018
Source: FE Analytics
Square Mile Investment Consulting & Research gives the £2.8bn fund a ‘Recommended’ rating, based upon the suitability of the index tracked, Vanguard’s commitment to operating passive strategies, the size of the fund, it cost and a good historic record of tracking the index.
Commenting on the choice of underlying index, Square Mile’s analysts said: “The maturity profile of the index is likely to be quite long, and, as such, the fund may be more suitable for longterm investors. In the shorter term the fund could be relatively volatile.”
Vanguard UK Government Bond Index has an OCF of 0.15 per cent.
MFM Bowland
The final fund on the list of those that seem to be headed for a fifth first-quartile year is MFM Bowland, which made 4.46 per cent in 2018 to date.
Managed by Hargreave Hale’s Leon Shuall since March 2014, the fund targets capital growth, with a moderate level of risk and resides in the IA UK All Companies sector. It is the best-performing member of the peer group over three and five years, according to FE Analytics.
Performance of fund vs sector and index between 1 Jan 2014 and 7 Dec 2018
Source: FE Analytics
In the latest fund report, Shuall said: “Since we took over management of the fund four years ago, the performance has become a little more consistent versus historic trends.
“We place an emphasis on the relative qualities of the companies we invest in and this has broadly helped with performance. The current asset allocation continues to remain relatively light in the more cyclically-sensitive sectors and we continue to face relatively expensive valuations for the more dependable companies.”
MFM Bowland has a 0.84 per cent OCF and is yielding 0.95 per cent.