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The best & worst performing funds of September

01 October 2020

The land of the rising sun stood out in September as Japanese funds outperformed as sterling weakened against the yen and markets reacted positively to a new prime minister.

By Abraham Darwyne,

Senior reporter, Trustnet

Japanese strategies were the best performers in September, while UK small caps and high yield bond funds struggled, according to the latest data from FE Analytics.

Unhedged UK investors in Japanese funds would have benefited from a strongly appreciating yen, which rose by 5.02 per cent against sterling over the month of September.

As such, Japanese equity funds made up 17 of the top-20 performing funds of September, dominating the rankings for the month.

 

Source: FE Analytics

The £973m Baillie Gifford Japanese Smaller Companies fund was the best performer returning 15.16 per cent for the month, but is the highest performing fund the seven-strong sector over a five-year time period with total returns of 179.1 per cent. Managed by Praveen Kumar since 2015, it is the largest fund in the IA Japanese Smaller Companies sector.

The £1.2bn Legg Mason IF Japan Equity fund was the best performing broad Japanese equities fund, with a return of 12.62 per cent for the month. It is run by Hideo Shiozumi who invests in both large- and small-cap Japanese companies. It has 42 holdings, with its largest position in Japanese internet medical services company M3, which has almost doubled year-to-date.

Simon Evan-Cook, manager of the £658m Premier Miton Multi-Asset Growth & Income fund, said: “Japanese equities performed well in September, which was a welcome piece of good news to us given our contrarian, overweight exposure there.

“To a certain extent this was Japan playing a bit of catch-up, as its market had lagged previously, and for no obvious reason.

“I suspect that the news of Warren Buffett taking significant stakes in some Japanese businesses may have helped as well, by throwing a useful spotlight on the attractive value many Japanese companies are currently offering.”

It came to light in September that legendary investor Warren Buffett took a $6bn bet on the region, investing in five of the biggest Japanese trading houses – Mitsubishi, Mitsui, Itochu, Marubeni and Sumitomo.

Commenting on the outperformance of Japanese smaller companies strategies, Evan-Cook said it was important to “beware of the lazy averages”.

Addressing passive investors who argue that the average fund, after charges, can’t outperform the market, Evan-Cook highlighted the performance of the IA Japanese Smaller Companies sector to the MSCI Japan Small Cap index over the last 10 years, which saw the average fund in the sector outperform the index by 74.04 per cent.

Performance of sector vs index over 10yrs

 

Source: FE Analytics

“One of the many answers to this is that the average fund is perfectly capable of outperforming the market, even after charges, because funds don’t represent every investor in the market,” he explained.

“This applies to every IA sector, but particularly to IA Japanese Smaller Companies, as this has been at the sharp end of Darwinism for a long time, and now only consists of seven funds that have all proved themselves good enough to avoid being shuttered.

“On top of that, I believe they’re mostly, if not all, growth funds now, and the best part of the Japanese market in September was small-cap growth. Which is why Japanese small-cap funds were top of the pops in September.”

With only seven constituents in the IA Japanese Smaller Companies sector and 72 in the IA Japan sector, it is not a surprise that their sectors dominated this month.

Best & worst funds of September

 

Source: FE Analytics

Since both are relatively small sectors, if many of the funds at the top perform well, it is easier to drag the performance of the whole sector up along with them.

There were also some specialist strategies to be found among the top-20 performers this month, including two biotech strategies – the $803m Polar Capital Biotechnology fund and the $2bn Pictet Biotech fund. Another specialist strategy making the list was the $454m JPM Korea Equity fund.

Indeed, the IA Asia Pacific Including Japan was boosted by exposure to Japanese equities,returning 4.34 per cent for the month versus the IA Asia Pacific Excluding Japan which only returned 0.9 per cent.

IA UK Gilts were the next strongest performers after Japanese funds, returning 2.53 per cent during the month. The sector benefited from investors fleeing to safety amid rising coronavirus cases and potential stalls in Brexit talks.

However, other UK strategies struggled, with the IA UK Equity Income and the IA UK All Companies sectors being the two worst performing sectors for the month of September.

Investor confidence took a hit given the ongoing uncertainty created by a looming Brexit deadline, as well as the fears over a second wave.

Ben Yearsley, director at Fairview Investing, commented: “The UK’s weak performance will continue until either there is a Covid vaccine or a Brexit deal with the EU is signed. In reality, probably both are needed.

“One fund manager recently described the UK as having ‘Brovid’ issues.

“As ever, it pays to have a diversified portfolio and it can be too easy to write markets off that have underperformed for a long period. This feels the case with the UK currently,” Yearsley finished.

IA Europe and IA European Smaller companies performed reasonably well as different parts of the continent experience different levels of success in managing the coronavirus pandemic.

On an individual fund basis there were some clear trends at the bottom of the table with energy strategies dominating.

The worst performer was the $308m Schroder ISF Global Energy fund, managed by Mark Lacey, which was down by 15.43 per cent during September.

It was one of several global energy funds at the bottom of the performance tables, including TB Guinness Global Energy (down 12.17 per cent), BlackRock GF World Energy (which made a 10.35 per cent loss), and GS North America Energy & Energy Infrastructure Equity Portfolio (down 7.35 per cent).

The poor performance of energy strategies came as fears of a second wave of the Covid-19 coronavirus began to emerge, denting hopes of a sustained economic recovery.

There were some other notable trends during September with several UK value strategies emerging at the bottom (such as Ninety One UK Special Situations and Man GLG Undervalued Assets) and Brazil-focused strategies (including HSBC GIF Brazil Equity and Schroder ISF Latin American).

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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.