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Which funds won and lost in 2018’s turbulent conditions?

02 January 2019

Data from FE Analytics highlights just how challenging 2018 was for investors, with returns being difficult to generate across the market.

By Gary Jackson,

Editor, FE Trustnet

Only six of the Investment Association’s 37 peer groups made positive returns for their investors in 2018, while little more than one-tenth of individual funds were in the black, data from FE Analytics shows.

FE Trustnet has highlighted on many occasions (seemingly in every article of recent months) just how challenging 2018 was been for investors, thanks to a host of concerns including the US-China trade spat, tighter monetary policy from the Federal Reserve, rising bond yields, high valuations, Brexit and lacklustre economic growth.

Data for the full calendar year now shows the full extent of how difficult it was for investors to make money in 2018, with the majority of funds ending the period in negative territory.

 

Source: FE Analytics

The chart above reveals the average return of all 37 Investment Association sectors – and how just six of them are positive. For comparison purposes, we’ve also included the average returns for the previous three years.

IA UK Direct Property is on top by a decent margin, as it relies on long-term contracts for its returns rather than the performance of the stock market. Within this peer group, the best performers were Aberdeen UK Property, Aviva Investors UK Property, BMO UK PropertyJanus Henderson UK Property PAIF and Kames Property Income.

In second place is IA Technology & Telecommunications, which is the only pure equity sector to post a positive average return. This sector had a particularly rocky 2018 as it performed strongly up to the summer (being up close to 20 per cent at the start of September) before finding itself at the centre of a significant global sell-off and handing back the bulk of its gains.

At the bottom of the table is the IA European Smaller Companies sector, which lost 15.52 per cent as the European economy started to flag. The average IA China/Greater China fund suffered from the US-China trade war and a slowing economy, while Brexit concerns hit the IA UK Smaller Companies sector hard.


Looking at individual funds and the year’s best performance came from GAM Star Alpha Technology, which made 19.98 per cent despite the heavy tech sell-off in the second half of 2018.

The fund, managed by Mark Hawtin since launch in 2010, resides in the IA Specialist sector. It has a long/short equity approach, which means it is not eligible for the IA Technology & Telecommunications sector but can capitalise on falling tech stocks.

In an update halfway through 2018, Hawtin predicted that volatility would return to global equity markets and said the portfolio was structured so the fund would be “in a position to buy dips” – an approach that appears to have worked, given its performance during the sell-off. “There is no concern whatsoever regarding the medium- to long-term trends in technology – in fact the pace of change is only accelerating,” the manager added.

 

Source: FE Analytics

Out of 3,764 funds in the Investment Association universe, only 422 – or 11.2 per cent – ended 2018 with a total return higher than zero. Just 14 funds including GAM Star Alpha Technology were up by 10 per cent or more.

Reflecting the generally strong performance of the healthcare sector – which is known for its defensive characteristics and steady dividends – Polar Capital Healthcare Opportunities came in second place after gaining 14.77 per cent. Fidelity Global Health Care is also towards the top of the table with an 11.55 per cent total return.

BNY Mellon Brazil Equity finished in third place. Brazilian equities were one of the best performing areas of the market in 2018 after the election of far-right candidate Jair Bolsonaro as president. Bolsonaro was welcomed by investors because of an economic platform that seeks to privatise state-run companies and make the central bank more independent.


Baillie Gifford American, which is managed by Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson, is notable in sixth place after making 13.34 per cent. For much of 2018, it had been the best performing fund from the Investment Association universe but gave up some ground in the latter half of the year.

The FE Invest team, which has the fund on its Approved List, said: “The fund’s benchmark-agnostic approach suggests that it may behave nothing like the S&P 500 – rather, it will be a case of a combination of the underlying stocks being heavily skewed towards those who use disruptive technologies.

“Overall, the fund would be most suited to a portfolio with a long-term investment horizon as well as one that can tolerate high volatility.”

 

Source: FE Analytics

The table above shows the funds with the lowest returns in 2018. TC South River Gold and Precious Metals is at the bottom with its 28.86 per cent loss; this comes despite a small rise in the gold price last year.

However, a fund run by one of the UK’s best-known investors made the year’s second biggest loss: Quilter Investors UK Equity Income II, headed up by Neil Woodford, fell by 28.78 per cent.

Laura Suter, personal finance analyst at AJ Bell, said: “Many who’ve been invested in Neil Woodford’s flagship LF Woodford Equity Income fund were disappointed with the star manager’s performance last year.

“But this fund, also run by him, performed even worse. While the fund is run to a similar style as the LF Woodford UK Equity Income fund, it doesn’t have exactly the same holdings and clearly had more of his losers last year.”

Other funds with 2018’s biggest losses are focused on out-of-favour areas such as emerging markets (Comgest Growth Gem Promising Companies and New Capital China Equity), Europe (Neptune European Opportunities and Merian Europe (Ex UK) Smaller Companies) and the UK domestic economy (Merian UK Mid Cap and Allianz UK Mid Cap).

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.