Last year proved a difficult one for many managers to outperform amid ongoing trade tensions between the US and China, while the Federal Reserve’s rate-hiking programme also unsettled markets.
As such, only a fraction of funds were able to generate a positive performance during 2018.
On a sector level, only six of the Investment Association’s 37 sectors delivered a positive average return last year, including the two money market sectors.
Added to this, there were a handful of sectors where just one fund was in positive territory.
Below, FE Trustnet takes a closer look at the individual funds which managed to beat all their peers by delivering a positive total return.
IA Mixed Investment 0-35% Shares
Surprisingly, the average IA Mixed Investment 0-35% member delivered a loss of 3.35 per cent in 2018.
Although it is the mixed asset sector with the least exposure to equities and therefore considered suitable for more cautious investors, it was not immune to the challenges thrown at markets last year.
However, the losses were more moderate than other sectors with the worst performer – 7IM Moderately Cautious – down by just 6.2 per cent.
The only fund in the positive territory was Investec Diversified Income with a 0.41 per cent total return.
Performance of fund vs sector in 2018
Source: FE Analytics
The £676m fund – managed by multi-asset veteran John Stopford – is an income-focused fund investing mostly in bonds and their derivatives and has a yield of 4.01 per cent, according to the most recent factsheet.
The manager takes a bottom-up approach to security selection when building a portfolio of 250-300 securities – from a universe of 25,000 – while taking a top-down view on portfolio construction and risk management.
Stopford aims to limit exposure to market shocks in the Investec Diversified Income fund with ‘bond-like’ volatility by understanding how holdings interact with the business cycle to gain a complete understanding of risk within the portfolio.
IA Global Emerging Markets
Last year, the average IA Global Emerging Markets fund was down by 2.41 per cent, according to data from FE Analytics, as emerging markets failed to repeat the double-digit returns of 2016 and 2017.
Emerging markets were hampered by a stronger dollar and tighter monetary policy in the US, while many strategies suffered as the US-China trade dispute took a toll on markets.
As such, the only fund in the IA Global Emerging Markets sector to make a positive return was the Lazard Mena fund, which was up by 7.63 per cent.
The five FE Crown-rated fund is managed by Fadi Al Said and invests exclusively in equities from the Middle East & North Africa, limiting its exposure to the US-China stand-off.
The Dubai-based team behind the fund and left by Al Said takes a bottom-up approach to investment focusing on the underlying fundamental drivers of the companies they invest in.
From a universe of more than 1,600 companies, Al Said and his team whittle down to a concentrated portfolio of around 25-45 names.
While some investors may believe the region is subject to the vagaries of oil prices, the oil & gas sector is largely state-controlled and many of the most liquid names are found in other sectors.
IA Japan
Japanese stocks also suffered in 2018, although the one fund to make a positive return in the IA Japan sector may be a familiar name to some investors: Lindsell Train Japanese Equity.
Performance of fund vs sector & benchmark in 2018
Source: FE Analytics
The fund managed by FE Alpha Manager Michael Lindsell – which he has overseen since 1998 – delivered a total return of 2.1 per cent last year, compared with a loss of 11.41 per cent for the average IA Japan fund and a fall of 8.58 per cent for the benchmark TSE Topix index.
Like partner Nick Train, Lindsell takes a long-term approach to investing constructing a highly concentrated portfolio of 20-35 stocks with a low turnover.
The manager said the five FE Crown-rated Lindsell Train Japanese Equity fund was not immune from the pressures facing Japanese companies, noting the economic slowdown in key trade partner China, ongoing population decline and the suspicion among investors that monetary stimulus may have run its course.
“Given this inauspicious background it’s more important than ever to ensure that the long-term investment case for the companies we own is as defendable and insulated from what’s affecting the market as a whole,” he said.
IA Asia Pacific Excluding Japan
While the fallout from the US-China trade spat seems to have had an impact on many of the countries in the region, there was a one positive performer to be found in the IA Asia Pacific Excluding Japan sector.
Performance of fund vs sector & benchmark in 2018
Source: FE Analytics
The Newton Asian Income fund was up by 0.21 per cent last year, as the average peer recorded a loss of 9.81 per cent and the benchmark FTSE Asia Pacific ex Japan index fell by 8.76 per cent.
The £1.2bn fund – managed since June 2016 by Zoe Kan – aims to deliver long-term capital growth as well as a sustainable attractive income. It has a yield of 4.14 per cent.
IA Sterling High Yield
Finally, in the IA Sterling High Yield sector, the Royal London Short Duration Global High Yield Bond fund was the lone positive performer.
The fund delivered a 0.44 per cent total return compared with a 0.72 per cent gain for the LIBOR GBP 3 Months benchmark and a loss of 3.23 per cent for the average peer.
The £1.3bn Royal London Short Duration Global High Yield Bond fund is managed by Azhar Hussain and Stephen Tapley and aims to outperform the benchmark by 2 per cent per annum over rolling three-year periods. The fund has a yield of 4.88 per cent.