The benign environment of 2017 gave way to a more turbulent 2018, with investors beset by greater volatility in markets, more geopolitical uncertainty and tighter monetary conditions.
Indeed, markets were more sensitive to signs that the end of the post-financial crisis period of loose monetary policy and ultra-low rates could be drawing to a close after 10 years.
So, after a pretty challenging year for investors, FE Trustnet has revisited the funds its staff were backing a year ago to find out how they weathered the market conditions of 2018.
Below we look at the funds in greater detail and consider their performance over 2018.
Performance of funds in 2018
Source: FE Analytics
Given the challenging market conditions of 2018, it comes as little surprise to learn that just one of the FE Trustnet fund picks made money during the course of the year.
Former senior reporter Jonathan Jones emerged with the best performing fund of 2018 after backing the Lindsell Train Japanese Equity fund.
The £290.9m, five FE Crown-rated fund, which is headed up by FE Alpha Manager Michael Lindsell, delivered a strong performance during the course of the year, although returns were pared back towards the end of the year.
The fund made a 3.14 per cent total return for the year to 18 December compared with a 6.02 per cent fall for the TSE Topix index – in sterling terms – and an 8.53 per cent loss for its average IA Japan peer.
Performance of fund vs sector & index in 2018
Source: FE Analytics
Lindsell Train Japanese Equity’s total return was boosted by two dividend payments representing a yield of 1.28 per cent, according to data from FE Analytics.
Lindsell has a long history of covering Japanese equities and has built a high conviction portfolio of stocks which he knows intimately. Low turnover and a focus on cash generative stocks such as chemical and cosmetics company Kao, video game giant Nintendo, and business IT firm OBIC Business Consultants are the cornerstones of his approach.
The next best performer was news editor Rob Langston’s choice – Standard Life Investments Global Smaller Companies – which recorded a loss of 3.85 per cent, in line with the 3.86 per cent fall for the average IA Global sector fund, which it is benchmarked against.
“After recording strong performance for much of the year and rallying particularly well after the first sell-off in 2018, the fund struggled as the second sell-off took hold in October,” said Langston.
“It’s not been helped – like the rest of the market – by concerns over the US-China trade war, either. Thanks, Donald.”
Performance of fund vs sector in 2018
Source: FE Analytics
Another five FE Crown-rated product, overseen by Alan Rowsell, the £1.3bn Standard Life Investments Global Smaller Companies fund invests in a concentrated portfolio of smaller companies where the team find opportunities.
“To be fair, smaller companies investing is not for the faint-hearted and this high conviction fund does carry with it the potential for greater stock-specific risk,” said Langston. “My rationale for choosing this fund was largely based on markets behaving as they had in 2017, which was a slightly foolish thing to do.
“Still the fund was able to keep pace with its peers – many of which invest only in larger, more liquid global names – and the MSCI AC World index, which fell by 3.83 per cent. I’d certainly consider backing this fund over a much longer time frame.”
The last two fund picks by the FE Trustnet editorial team suffered as their area of the market fell out of favour for much of the year.
“This time last year I thought emerging markets would rally strongly in 2018 – how wrong I was,” said FE Trustnet editor Gary Jackson.
“I chose Baillie Gifford Emerging Markets Growth for its ability to capture market upside but, up to 18 December, the fund was down 8.44 per cent in 2018 following a similar fall in the MSCI Emerging Markets index.”
The £784.5m five FE Crown rated fund is managed by Richard Sneller and Mike Gush and is focused on generating long-term (five year) returns with an unconstrained, bottom-up approach to emerging markets and sectors, producing a portfolio of 60-100 stocks.
“Despite the fact that my fund pick is ranked third out of four in the FE Trustnet team, I’m content with how it performed,” said Jackson. “It made a loss due to ‘big picture issues’ but fared better than the average emerging market fund (which is down 10.47 per cent year to date).”
Performance of fund vs sector in 2018
Source: FE Analytics
He added: “I believe in putting my money where my mouth is when doing this fund picks and Baillie Gifford Emerging Markets Growth is found within my portfolio. It’s going to remain there and I still believe this will deliver very healthy returns over the long term.”
Meanwhile, Trustnet Magazine editor Anthony Luzio had a year to forget with his choice Templeton Emerging Markets investment trust, which was the worst-performing pick of the four and also faced a change manager during in 2018.
“The performance of my pick from last year, Templeton Emerging Markets, could be summed up by this quote from Blackadder: ‘It started badly, tailed off a little in the middle and the less said about the end the better’,” said Luzio.
The trust fell by 10.3 per cent, lagging the MSCI Emerging Markets benchmark’ and average IT Global Emerging Market peer’s loss of 8.98 per cent.
Performance of trust vs sector & benchmark in 2018
Source: FE Analytics
“Manager Carlos Hardenberg quit at the start of February, by which point the MSCI Emerging Markets index had already peaked for the year – and it was all downhill from then on.”
Luzio added: “I still think that the long-term case for investing in emerging markets looks compelling, and now may be an interesting buying opportunity, but I would use Hardenberg and Mark Mobius’s new vehicle, the Mobius Investment Trust, to play this theme instead.”