Funds with a focus on Chinese equities, gold, technology and UK small-caps generated the highest returns for investors during 2019, while an absolute return fund and Neil Woodford’s flagship offering were among those posting the biggest losses. 
While a sense of nervousness hung around for the entirety of last year, it ended up being a very good time for stock markets. The global stock market, represented by the MSCI AC World index, posted a total return of 26.40 per cent in US dollars, which was its strongest year since 2009.
This translated into solid performance from funds in the Investment Association universe. Of the 3,825 funds with a one-year track record, 3,728 made a positive total return in 2019. What’s more, 2,856 made double-digit gains for their investors and 186 were up more than 30 per cent.
On a sector level, it was the IA Technology & Telecommunications peer group that posted the highest gain last year – its average member was up 31.19 per cent in total return terms as the bull run in stocks such as Apple and Microsoft continued in force.
Source: FE Analytics
Indeed, technology was the best-performing part of the global stock market in 2019 with the MSCI AC World Information Technology index making a total return of 40.82 per cent over the course of the year. This was far ahead of consumer discretionary stocks, in second with 22.75 per cent, and third-placed industrials (up 21.44 per cent).
The outperformance of technology stocks – as well as the resumption of monetary easing by the Federal Reserve and the strong relative economic condition of the US – meant that the second-highest returning Investment Association sector last year was IA North American Smaller Companies (up 25.92 per cent) while IA North America was in fourth after making up 24.63 per cent).
The UK fund sectors also ended the year towards the top of the table, reversing the trend of underperformance that has been in place since the Brexit referendum. IA UK Smaller Companies was in third place with an average total return of 25.31 per cent with IA UK All Companies in fifth after making 22.32 per cent.
It must be noted, however, that the UK equity sectors had been lagging their international peers for much of 2019 as Brexit-related political uncertainty continued to dog investor sentiment. But this went through a dramatic turnaround once the Conservatives won a solid majority in December’s general election.
The lowest returns of last year, on a sector level, came from IA UK Direct Property, with an average total return of just 0.21 per cent. It was followed by IA Short Term Money Market (0.52 per cent), IA Standard Money Market (0.73 per cent), IA Targeted Absolute Return (4.45 per cent) and IA Global Bonds (5.15 per cent).
Source: FE Analytics
As the above table shows, the best performance from an individual Investment Association fund came from Allianz China A-Shares, which made a total return of 52.31 per cent in 2019.
Managed by Anthony Wong and Sunny Chung, the $1.5bn fund – as its name suggests – concentrates on companies that are listed as A-shares on the stock exchanges of Shanghai or Shenzen, rather than those in Hong Kong.
The Chinese equity market is the second-largest in the world (after the US) and A-shares account for around 70 per cent of it. Allianz Global Investors believes there are several advantages to investing in this market: “For investors who want to tap into the China macro growth story, A-shares build a real picture of the Chinese economy.
“Hong Kong stock markets are dominated by either internet giants or old economy stocks such as financials, telecom, energy, etc, whereas A-shares offer a far greater range of opportunities and are more diversified, covering key growth sectors such as industrials, health care and travel. They also exhibit a low correlation to other major equity markets.”
However, it also noted the risks of the China A-shares markets, explaining that they are “dominated” by retail investors and are correspondingly inefficient, while some companies come up poorly on environmental, social and governance (ESG) ratings. Therefore, the firms said active management is needed to avoid overly-risky stocks and exploit any opportunities.
Other more specialist funds account for the next best returns of 2019: HC Charteris Gold & Precious Metals (up 51.96 per cent) and Pictet Russia Index (up 46.32 per cent).
Sitting in fourth place with a total return of 46.24 per cent is ASI UK Smaller Companies. This £1.5bn fund is headed up by FE fundinfo Alpha Manager Harry Nimmo and is one of the best-known members of the IA UK Smaller Companies sector.
It’s not the only UK equity fund to make some of the industry’s highest returns last year, however, with Franklin UK Mid Cap, MI Chelverton UK Equity Growth, ASI UK Impact Employment Opportunities Equity, JPM UK Smaller Companies, ASI UK Mid Cap Equity, Premier UK Growth and LF Miton UK Value Opportunities all sitting among the top 25 funds.
Source: FE Analytics
At the very bottom of the performance table for the entire Investment Association universe we have a 56.98 per cent loss from the VT Garraway Absolute Equity fund. This fund was suspended halfway through the year following poor returns and high redemption requests; it is in the process of being wound down.
It was a similar story – albeit a much more high-profile one – for the fund with the fourth biggest loss of 2019: LF Equity Income, down 21.85 per cent.
Formerly known as LF Woodford Equity Income, this was the flagship fund of Neil Woodford – until this year one of the UK’s most respected stock pickers – and had enjoyed some early success in its first few years after launch in 2014.
However, the fund started to underperform after the UK voted to leave the EU in 2016 and, following an extended period of lacklustre returns, investors started to pull money out of the portfolio en masse.
It then ran into liquidity problems thanks to its extensive unquoted holding and was suspended over the summer. It is now being wound down after its administrators fired Woodford, whose promptly stepped down from his remaining portfolios.