Renewed turbulence in financial markets means that the proportion of funds generating positive returns has fallen to their lowest level since the global financial crisis in 2008, research by FE Trustnet shows.
Following a period of relative calm in markets during 2017, the past year has presented investors with much more challenging conditions and markets have sold off twice in 2018. Many commentators expect this volatility to continue into the coming year as issues such as the US/China trade war and the Federal Reserve’s monetary tightening plans remain in play.
Given this, FE Trustnet wanted to find out what share of the funds in the Investment Association universe have been able to make positive returns during 2018 so far. The results make for sobering reading.
Source: FE Analytics
As the table above shows, around fourth-fifths of Investment Association funds are sitting on a loss for 2018 to date (the period covered in this research spans 1 January to 12 December).
Only 20.5 per cent of the 3,779 funds have made a positive return this year. This is stark contrast to recent years: in 2017, 95.3 per cent of the Investment Association was in the black while in 2016 some 96.7 per cent made money.
Indeed, this year’s performance is on track to be worst showing for funds in 2008, when only 12.8 per cent made positive returns as markets were struck by the global financial crisis.
In the interests of balance, it’s worth pointing out that the average return is nowhere as bad as it was in 2008. This year, the average total return for an Investment Association fund stands at a 3.84 per cent loss; in the financial crisis, the average fund was down 19.47 per cent.
Of the 37 peer groups within the Investment Association, there are four where not a single member has made a positive return in 2018.
IA European Smaller Companies has the worst average return, with a 13.34 per cent loss. The sector was one of the strongest performers in 2017 but has suffered this year as lacklustre economic numbers and political uncertainty took its toll on investor sentiment.
In the cases of the IA Asia Pacific Including Japan and IA China/Greater China sector, investors have fled these areas because of the ongoing trade dispute between the US and China, which has been one of the major causes of 2018’s volatility.
Source: FE Analytics
UK strategies have also struggled this year, with the continued uncertainty stemming from Brexit being a major factor in this.
In the IA UK Equity Income sector, only one fund – Schroder Income – made a positive return over the period we examined, while just six IA UK All Companies funds are in the black including TB Evenlode Income and CFP SDL UK Buffettology.
Turning to slightly more positive findings, 10 of the Investment Association’s 37 peer groups made money for their investors between 1 January and 12 December.
The IA UK Direct Property, IA UK Index Linked Gilts and IA Money Market sectors are the only ones where every single member is in the black for the period we examined.
In the IA UK Direct Property sector, the average year-to-date return stands at 4.42 per cent.
The strongest returns here have come from TIME Investments Freehold Income, which is up 7.6 per cent. It’s followed by Scottish Widows HIFML UK Property (up 7.35 per cent), L&G UK Property (up 4.96 per cent), TIME Investments Social Freehold (up 4.92 per cent) and Standard Life Investments UK Real Estate (4.74 per cent).
Performance of funds over 2018
Source: FE Analytics
Despite the rather downbeat overview of the funds space given above, some have made decent returns for their investors this year. Our data shows 59 funds have posted double-digit gains over the year-to-date; four of these have made more than 20 per cent.
Baillie Gifford American leads the pack after making 24.18 per cent this year. Managers Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson have a growth approach to investing which has worked well over the long term but – as the chart above shows – has come under pressure since the summer.
Likewise, the second-best performer of 2018 so far – GAM Star Alpha Technology, with a 24.04 per cent gain – focuses on stocks at the heart of the recent sell-off. Tech has enjoyed a strong run over the past decade but has struggled as valuations reached expensive levels.
Of course, there are still two weeks of 2018 to go and FE Trustnet will soon reveal which funds made the strongest and weakest returns across the full year.