Close to 25 giant funds made some of their sector’s lowest returns in 2018 after falling foul of the harsh sell-offs that bruised investor sentiment over the course of the year.
In a recent article, FE Trustnet revealed the funds that have assets under management of more than £1bn and were in their peer group’s first decile during 2018. Funds such as Baillie Gifford American, Lindsell Train Global Equity and TB Evenlode Income were among those achieving this.
Here, we turn things on their head and look for large funds that were in the bottom decile last year. FE Analytics shows that this was the case for 24 funds.
Performance of fund vs sector and index in 2018
Source: FE Analytics
The above table shows the performance of the giant fund that made the lower total return last year. Merian UK Mid Cap lost 21.54 per cent in 2018, ranking it 257th out of the 262 funds in the IA UK All Companies sector; it also underperformed its FTSE 250 benchmark.
This comes after a strong run for the £3bn fund, which is run by FE Alpha Manager Richard Watts. It has been in the peer group’s top decile in five of the past 10 full calendar years and 2018 was the only year during this period it was in the last decile; over the past decade, its 337.55 per cent total return was the eighth-highest in the sector.
The FE Invest team, which has the fund on its Approved List, said: “Fund performance can differ significantly from its benchmark, as the manager takes on a high level of stock-specific risk.
“Watt is currently bullish on the global economy and maintains reduced exposure to UK domestics, so outperformance should be expected if global growth continues to pick up.”
In second place with an 18.3 per cent fall is GAM Star Continental European Equity. This £1bn fund, which resides in the IA Europe Excluding UK sector, has made a second-quartile 141.12 per cent over the past 10 years.
FE Alpha Manager Niall Gallagher has a fundamental valuation approach when choosing holdings for the fund. It currently counts the likes of Industria de Diseno Textil, TOTAL and Deutsche Boerse as its largest holdings.
The portfolio is overweight to more economically sensitive areas such as consumer discretionary, industrials and information technology while being underweight defensives like healthcare and consumer staples, which explains its underperformance given the weakness in the European economy. It also has close to 10 per cent of assets in UK equities.
Source: FE Analytics
Candriam Equities L Emerging Markets is in third place. Emerging markets had a difficult year, in large part due to the US-China trade dispute, and this £1.2bn fund was down 18.19 per cent over the course of 2018.
The fund, which is managed Jan Boudewijns and Mohamed Lamine Saidi, has China as its largest geographic weighting (31.1 per cent of assets) and its top holdings include the country’s Tencent Holdings, Alibaba Group and Ping An Insurance.
In a recent update, Boudewijns argued that investors should consider emerging markets and see 2019 as “an opportunity to buy into an oversold market and hold your nerve to take advantage of the strong long-term fundamentals”.
“It is likely that 2018 and 2019 will come to be seen as transition years for emerging markets. While they entered 2018 positively, continuing a long period of strength, stock prices declined substantially over the year,” he said.
“However, 2019 could mark the start of a new modest upward trend, underpinned by still-positive (relative) earnings growth and a reduced impact of the negative 2018 drivers.”
The three largest funds on the above list all invest in fixed income: GAM Multibond Local Emerging Bond (with assets of £6.2bn), GS Emerging Markets Debt Portfolio (£5.8bn) and Legg Mason Western Asset Macro Opportunities Bond (£5.5bn).
Performance of fund vs sector and index in 2018
Source: FE Analytics
The largest equities fund is Jacob de Tusch-Lec’s £3.5bn Artemis Global Income fund, which was down by 12.49 per cent compared with a 5.83 per cent fall from its average IA Global Equity Income peer.
Artemis Global Income has a strong long-term track record. Since launch in July 2010 it has made 162.32 per cent, which the highest return in the sector (where the average fund rose 112.59 per cent) and ahead of the MSCI AC World’s 138.79 per cent gain.
Square Mile Investment Consulting & Research, which gives the fund an ‘A’ rating, said: “In our opinion, this strategy differentiates itself versus many of its peers both by steering away from the more traditional income stalwarts and by combining stock selection with a consideration of the macro backdrop.
“The manager ultimately looks to provide a blend of companies with different characteristics whose fortunes do not rise and fall together, as may be the case with a portfolio made up of purely high yielding bluechip names.”