More than one-in-10 funds in the Investment Association universe made a bottom-quartile return in the sell-off at the end of 2018 but jumped to the top of their sector in 2019’s opening rally, FE Trustnet research shows.
In a previous article, we looked at the funds that were able to maintain a top-quartile ranking in both the difficult final quarter of last year and the rising markets of 2019’s first four months. Among the funds managing to achieve this were Fundsmith Equity, LF Lindsell Train UK Equity and Janus Henderson Horizon Japanese Smaller Companies.
Our research found that just 2.05 per cent of the 2,981 eligible Investment Association funds were top-quartile in both periods under consideration, with the IA UK All Companies having the weakest result (at 0.76 per cent) and IA Japanese Smaller Companies having the strongest (28.57 per cent).
Source: FE Analytics
However, when it comes to the funds that were in the bottom quartile of their peer group in the fourth-quarter sell-off only to move into the top quartile when markets recovered in 2019, we found that 347 – or 11.6 per cent – had done this.
The table above shows the peer groups that had the biggest share of their members moving between the bottom and first quartile. While IA Asia Pacific Including Japan sits at the top of the list, the numbers are distorted by the fact that it is a very small sector.
IA Japan is the first major sector to have a large proportion of its members jumping from the bottom to the top over the two differing periods. Some of its biggest members did this, including the £2.9bn Baillie Gifford Japanese, £1.1bn JPM Japan and £1bn Legg Mason IF Japan Equity funds.
Japan in general had a pretty bad end to 2018 as the global sell-off coincided with periods of yen strength (the currency is seen as a ‘safe haven’ during times of market stress), which exacerbated its stock market fall.
In second place is IA Sterling High Yield with eight funds staging a turnaround including Pimco GIS US High Yield Bond, L&G High Income Trust and Lord Abbett High Yield while Janus Henderson China Opportunities, NB China Equity and GAM Star China Equity were among the seven rebounding IA China/Greater China members.
From the larger sectors in the Investment Association universe, 14 per cent of IA UK All Companies funds were the bottom quartile during 2018’s final quarter and in the top quartile during 2019’s first four months. These included well-known offerings such as the £7.4bn Invesco High Income, the £2bn Jupiter UK Special Situations and the £1bn Schroder Recovery funds.
Some 13.8 per cent of the 319 funds in the IA Global sector also staged a short-term turnaround, with names such as Morg Stnly Global Opportunity, Pictet Security and Rathbone Global Opportunities being on the list.
Source: FE Analytics
Turning to individual funds, the above table shows the funds with the biggest improvements in performance over the two periods in question.
As can be seen, JPM US Small Cap Growth made a 21.39 per cent loss in the last three months of 2018 but was up by 27.81 per cent during the first four months of 2019, leaving a difference of 49.2 percentage points.
The £127.8m fund, which is managed by Eytan Shapiro and Timothy Parton, resides in the IA North American Smaller Companies sector and is the only member of the 17-strong peer group to move from bottom to top quartile.
As its name suggests, JPM US Small Cap Growth is based around the growth style of investing – which suffered in the fourth quarter but has led the market rally in 2019. It is overweight sectors such as technology, consumer discretionary and consumer staples.
Standard Life Investments UK Opportunities isn’t far behind with a 47.12 percentage point gap between its returns over the two periods.
The fund has been managed by Abby Glennie since January 2016 and focuses on small- and medium-sized companies, which explains why it suffered in the risk-off fourth quarter before rallying hard as investor sentiment improved in 2019.
Of the funds highlighted in the table above, Merian UK Mid Cap is the largest with assets under management of £3.4bn.
It is managed by Richard Watts and has built up a strong track record since its launch in February 2002, returning 853.77 per cent against a 479.83 per cent rise in the FTSE 2050 ex IT index and a 194.34 per cent for its average IA UK All Companies peer.
Other large funds on the above list include Baillie Gifford American (£2.2bn), Standard Life Investments UK Smaller Companies (£1.5bn) and Standard Life Investments Global Smaller Companies (£1.3bn).