With the year drawing to a close, FE Trustnet has revisited the sectors backed by advisers at the end of 2016 and examined the performance of some of the most heavily researched funds in them over the course of 2017.
While there are some similarities among advisers’ sector choices 12 months on, there are also a number of key differences.
IA Global and IA Mixed Investment 20%-60% UK funds were again chosen by advisers as sectors they would be directing client money towards next year, but advisers have become more bearish about the IA UK All Companies and IA Targeted Absolute Return sectors.
Below, we revisit advisers’ favoured sectors from last year and the funds they were researching during the final months of 2016 to see how they have fared this year.
IA Targeted Absolute Return
This was the fifth most popular sector among advisers last year and had been the best-selling sector for retail investors in each of 2015 and 2016. For the first 10 months of 2017 it recorded sales of more than £3bn, although it trails the most popular sector this year: IA Sterling Strategic Bond.
The £21.6bn Standard Life Investments Global Absolute Return Strategies (GARS) fund was the most researched fund from the sector at this stage last year.
One of the most popular funds from across the IA universe and a firm favourite among advisers, the fund has had challenging 2017.
It has shed more than £5bn in the past year, according to data from FE Analytics, and has returned just 1.96 per cent year-to-date, after a loss of 2.68 per cent in 2016.
Low single-digit returns in 2017 have been a feature of a number of top researched absolute return funds at the end of last year.
Performance of IA Targeted Absolute Return funds YTD
Source: FE Analytics
As the above chart shows, of the top five most-researched the Henderson UK Absolute Return fund has made the best return as it is up by 3.17 per cent. The worst performer is Jupiter Absolute Return fund, which has lost 2.62 per cent in 2017 so far.
IA Global
The IA Global sector remains popular with advisers and has been highlighted as a destination for client money in the year ahead.
If advisers followed through with their convictions, their clients will have been rewarded with the average sector fund up by 12.76 per cent in 2017.
Topping the most researched list during the final three months of last year was the FE Alpha Manager Terry Smith’s Fundsmith Equity.
The five FE Crown-rated fund is a perennial favourite among investors and this year it has rewarded investors again having gained 21.39 per cent.
Performance of IA Global funds YTD
Source: FE Analytics
Indeed, Fundsmith Equity was the best performer of the top five most researched global equity funds, although the five crown-rated Rathbone Global Opportunities – managed by James Thomson – has also reported double-digit gains of 19.92 per cent.
Of the top five, the worst performer is the M&G Global Dividend fund which has underperformed the sector average with a total return of just 9.15 per cent, as the above chart shows.
IA UK All Companies
One of the most unpopular sectors of 2017, IA UK All Companies funds have experienced outflows of £1.5bn during the course of the year as retail investors have become more nervous about the outlook for the domestic economy amid ongoing Brexit negotiations.
The UK market has continued to grow albeit at a slower rate than its global peers, however, and investors in the average IA UK All Companies member will have seen a total return of 10.82 per cent compared with a 9.54 per cent rise in the FTSE All Share index.
Performance of IA UK All Companies funds YTD
Source: FE Analytics
The most researched fund at the end of last year was Invesco Perpetual High Income, managed by FE Alpha Manager Mark Barnett.
While a long-term favourite with many investors, it has underperformed its average peer with a total return of 3.15 per cent and has been indeed the worst performer of the top five most researched funds from the sector.
The best performer among the most researched was the five crown-rated CF Lindsell Train UK Equity fund, managed by FE Alpha Manager Nick Train, which has returned 18.24 per cent year to date.
IA Mixed Investment 40%-85% Shares
Last year, advisers said they were more likely to outsource some of their investment business to external providers with the IA Mixed Investment 40%-85% Shares sector emerging as one of those set to benefit from greater interest.
Indeed, the average IA Mixed Investment 40%-85% Shares sector fund has delivered an 8.53 per cent return in 2017.
Performance of IA Mixed Investment 40%-85% Shares funds YTD
Source: FE Analytics
The best performer of 2016’s five most researched funds has the £731.2m, five FE Crown-rated Premier Multi-Asset Growth & Income fund – managed by David Hambidge, Ian Rees, Simon Evan-Cook and David Thornton – with a return of 10.85 per cent this year.
The worst performer, meanwhile, has been the £663.1m 7IM AAP Moderately Adventurous fund, which delivered a return of 8.26 per cent.
Two passive strategies were also among the top five: Vanguard LifeStrategy 60% Equity and Vanguard LifeStrategy 80% Equity. The latter has returned 10.36 per cent in 2017, while the former is up by 8.35 per cent.
IA Mixed Investment 20%-60% Shares
Finally, the IA Mixed Investment 20%-60% Shares sector was the most popular among advisers heading into 2017 and has also been picked as the most preferred destination for client cash in 2018.
The multi-asset sector serves investors looking for exposure to a range of investments and is the home of many notable income offerings. In 2017, the sector has risen by 6 per cent.
The most researched fund was the Paul Causer, Paul Reed and Ciaran Mallon’s Invesco Perpetual Distribution fund, which has delivered a total return of 6.80 per cent so far this year.
Performance of IA Mixed Investment 20%-60% Shares funds YTD
Source: FE Analytics
However, the best performer was another Premier fund – Premier Multi-Asset Distribution – which has risen by 7.52 per cent. The £1.3bn strategy is managed by the same team behind its sister strategy in the IA Mixed Investment 40%-85% Shares sector.
The worst performer of the year is the Henderson Cautious Managed fund, co-managed by a team of the asset manager’s equity and fixed income specialists. So far in 2017, it has risen by 4.04 per cent.