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The giant funds topping their sectors during 2017

11 January 2018

FE Trustnet finds out which funds with assets of more than £1bn made some of 2017’s strongest total returns.

By Gary Jackson,

Editor, FE Trustnet

Fundsmith EquityJupiter European and JOHCM UK Equity Income are among the giant funds that achieved top-decile returns in the respective peer groups in 2017, research by FE Trustnet shows.

Last year saw stock markets across the globe grind their way to new record highs as investor sentiment surged despite concerns surrounding Donald Trump’s US presidency, the ongoing Brexit negotiations and North Korea’s nuclear weapons programme.

Given that so many financial advisers and their clients have exposure to giant funds, we decided to look at how all the funds in the Investment Association universe with assets under management of more than £1bn performed last year.

In a previous article, we found that big names such as Neil Woodford’s LF Woodford Equity Income, Mark Barnett’s Invesco Perpetual High Income and Invesco Perpetual Income, and Peter Meany and Andrew Greenup’s First State Global Listed Infrastructure funds found themselves in the bottom decile of their peer group in 2017.

However, as the below table – which is ranked in order of 2017 total returns – shows, some giant funds had a very strong year indeed. In fact, 42 funds (11 per cent of those in sectors where decile rankings are appropriate) found themselves in the first decile.

 

Source: FE Analytics

Several of the funds at the top of that table have already been mentioned when we looked at the winning sectors and funds of 2017.

Frank Yao and Lihui Tang’s $1.4bn NB China Equity fund was the best performing fund in the entire Investment Association universe after making more than 50 per cent on the back of a revival in sentiment towards emerging markets.

However, one of the most popular offerings in the business has found itself in the top decile for another year – FE Alpha Manager Terry Smith’s £13.6bn Fundsmith Equity fund.


A return of 21.97 per cent made Fundsmith Equity the 22nd highest returning fund of the IA Global sector in 2017. This marks the third time in four years that the five FE Crown-rated fund has turned in first decile numbers.

Smith’s concentrated portfolio is built around companies that can generate sustainable returns on investors’ capital of over 10 per cent, have advantages which are difficult to replicate and are resilient to change, particularly technological innovation.

The portfolio is based on growth companies in sectors such as technology, consumer staples and healthcare, which have enjoyed a strong run over the decade since the financial crisis and had another outperforming year in 2017. However, the specialist focus of the fund means investors should adopt a long-term approach to it.

Square Mile Investment Consulting & Research noted: “The philosophy is very straightforward, to invest in higher quality companies and hold them for the long term. Unitholders therefore should not consider this proposition for a short-term foray into global equity markets.”

Performance of fund vs sector and index since launch

 

Source: FE Analytics

Another high-profile fund on the list is Jupiter European, which is headed up by FE Alpha Manager Alexander Darwall. After being unloved in the years following the financial crisis, European equities benefitted from a rebound in investor sentiment last year.

Like Fundsmith Equity, the £4.9bn Jupiter European fund focuses on quality/growth companies and has outperformed in recent years as a result. The five FE Crown-rated fund was in the IA Europe ex UK sector’s top decile in 2017, 2015 and 2014, as well as over one, five and 10 years.

It is also one of the most heavily researched funds with professional investors using FE Analytics. In fact, it was the most researched fund on the tool in 2017, replacing Standard Life Investments Global Absolute Return Strategies in the top spot.

FE Invest said: “Darwall has built up an impressive track record in European equity investing, and this strategy and style of buying high-quality global companies has now weathered a number of market environments.”


Other large European equity funds to outperform last year include BlackRock European DynamicLO Europe High Conviction and MFS Meridian European Value.

In the UK equity space, two mid-cap portfolios had good runs in 2017 with Richard Watts’ £3.4bn Old Mutual UK Mid Cap fund and Andrew Brough’s £1.2bn Schroder UK Mid 250 fund both sitting in the top decile of the IA UK All Companies sector.

Three giant IA UK Equity Income members made first-decile total returns last year: James Lowen and Clive Beagles’ £3.4bn JOHCM UK Equity Income fund, Siddarth Chand Lall’s £1.6bn Marlborough Multi Cap Income fund and Thomas Moore’s £1.3bn Standard Life Investments UK Equity Income Unconstrained fund.

All three funds have strong long-term track records and have outperformed by their average peer and the FTSE All Share index by a significant margin over the past five years.

Performance of funds vs sector and index over 5yrs

 

Source: FE Analytics

Considering other peer groups, Morgan Stanley Global Opportunity, Lindsell Train Global Equity, Baillie Gifford Global Alpha GrowthThreadneedle Global Select and SKAGEN KonTiki join Fundsmith Equity in the IA Global’s top decile.

In the IA Global Emerging Markets sector, GS Emerging Markets Equity Portfolio and Hermes Global Emerging Markets were first decile in 2017 while Morgan Stanley US Growth, T. Rowe Price US Large Cap Growth Equity and Morgan Stanley US Advantage achieved this in IA North America.

When it comes to bonds, funds running more than £1bn and making top-decile 2017 returns include GAM Star Credit Opportunities GBP, Royal London Sterling Extra Yield Bond, Legg Mason Western Asset Macro Opportunities BondRathbone Ethical Bond and L&G High Income Trust.

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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.