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The regional equity funds making gains month-in, month-out

28 June 2018

FE Trustnet considers the equity funds from the Investment Association’s regional sectors that have made gains in the most months over the past decade.

By Jonathan Jones,

Senior reporter, FE Trustnet

Most investors would prefer to hold funds that have more positive months than negative so in the next article of this ongoing series we look for regional equity funds that have done just that.

The last decade has seen one of the longest bull markets in history, with the last few years also notable for extraordinarily low volatility

Below, FE Trustnet looks at the funds in regional equity markets – Japan, Europe, emerging markets and the US – to find those that have most consistently capitalised on these accommodative market conditions.

Previously, we have also looked at the funds in the IA Global sector as well as the UK funds in the IA UK All Companies and IA UK Equity Income sectors.

Starting with the market that has achieved the highest number of months in positive territory – the US – where the S&P 500 has made returns 66 per cent of the time (or 79 out of 120 periods over the last decade).

Only five funds have achieved more positive months, with two being trackers – L&G US Index Trust and HSBC American Index – and the Janus Henderson Inst Exempt North American Index Opportunities only able to invest in the companies of its FTSE North America index.

The US market is notoriously difficult to outperform given how efficient the market is and how well-researched it is.

Table of top and bottom 10 funds for monthly positive periods over 10yrs

 

Source: FE Analytics

Only GS US Core Equity Portfolio and AXA Rosenberg American have also achieved more monthly gains. All five have made returns in 80 of the possible 120 months.

However, neither actively-managed fund has outperformed the index and indeed sit in the second and third quartiles of the IA North America sector. Both have third quartile maximum drawdown figures – the most that an investor could have lost if buying and selling at the worst possible times – suggesting that when they have fallen it has tended to be by more than the average peer.

At the bottom end, Eaton Vance Int (Ire) US Value has made gains 54 per cent of the time – the least in the sector – and is also the only one to have made a loss over the last decade, down 15.16 per cent.


Proving to be the exception to the rule that fewer months in the black means lower returns, GAM North American Growth run by FE Alpha Manager Gordon Grender has made gains in 70 of the 120 possible months – or 60 per cent of the time.

However, when it has made top quartile returns and beaten the S&P 500 index despite this, as it has the lowest maximum drawdown in the sector meaning that when it has strayed into negative territory it has not been by as much as others.

 

Unlike the US, European funds have been more consistent on average than their MSCI Europe ex UK benchmark over the last decade. If the index were on the list it would be among the bottom 10 for monthly gains.

Indeed, 83 per cent of funds have made gains in months than the index, which has made profit in 71 months (or 59.1 per cent of the time).

At the top of our list is the five FE Crown-rated fund Man GLG Continental European Growth run by Rory Powe with 79 positive months.

The fund has been the second-best performer in the sector, returning 228.55 per cent and has a second quartile maximum drawdown of 37.78 per cent.

The next three funds with the most positive monthly periods – Waverton European Capital GrowthF&C European Growth & Income and Marlborough European Multi-Cap – are all also top quartile performers.

Table of top and bottom 10 funds for monthly positive periods over 10yrs

 

Source: FE Analytics

At the other end of the spectrum, SVM Continental Europe has the lowest number of positive months with 67, meaning it has made gains just 56 per cent of the time.

However, the fund is a second quartile performer, as are three others on the list, while GAM Star Continental European Equity (also on the list) is a top quartile performer.

The GAM fund has been one of the least volatile and has a top quartile maximum drawdown, suggesting when it has been in negative territory it has been by less than its peers.

Only HSBC European Growth conforms to the logic that fewer months in positive territory will impact returns, sitting in the bottom quartile, up 69.4 per cent.


In Japan the pattern is more in-line with expectations although there are still some anomalies.

At the top of the list is five FE Crown-rated Baillie Gifford Japanese managed by Matthew Brett after long-time manager Sarah Whitley stepped down last year.

The fund is a consistent performer, making positive returns in 65 per cent of months (78 in total) versus the Topix benchmark’s 71 positive periods.

Table of top and bottom 10 funds for monthly positive periods over 10yrs

 

Source: FE Analytics

The fund is the fourth-best performer in the 50-strong sector with a long enough track record, with top performing Legg Mason IF Japan Equity second on the list.

Headed up by Hideo Shiozumi, the five FE Crown-rated fund is known for being volatile but has produced more than double the total return (640.58 per cent) of the next-best performer (Fidelity Japan Smaller Companies fund’s 236.92 per cent).

The fund is one of five that have managed to make gains in 75 months out of a possible 120. Only two of the top 10 find themselves below average in the peer group for returns and none sit in the bottom quartile.

Turning to the other end of the list, Invesco Perpetual Japan has experienced the fewest months in positive territory (65), although it is a second-quartile performer.

Another with a lumpy return profile, it has the second-worst maximum drawdown in the sector over the period (32.74 per cent) but has tallied a total return of 139.36 per cent.

Scottish Widows Japan Growth and Fidelity Japan are next with both having made bottom quartile returns over the period.

However, the next three funds – JPM JapanAberdeen Japan Equity and Aberdeen Global Japanese Equity – are all top quartile performers despite fewer months in the black.

Both Aberdeen funds have a low maximum drawdown relative to peers, suggesting that they have protected on the downside. Indeed, both have top-quartile measures of downside risk.

Conversely, JPM Japan has struggled on the downside when looking at a range of metrics, but has one of the best Sharpe ratio figures – a measure of risk-adjusted returns – suggesting it has performed better in the months it has risen.



Finally, in the emerging markets Aberdeen Global Emerging Markets Smaller Companies is the top fund for consistent monthly gains with 79 - the only one to top 65 per cent.

For context, the MSCI Emerging Markets index achieved 64 positive months – or 53 per cent of the time.

For the first time in the series, the four best performers in the sector for performance have also achieved the four most positive months – albeit with the order somewhat muddled.

Both the Aberdeen fund and Aviva Inv Emerging Equity MoM 1 have also achieved top quartile maximum drawdown figures, suggesting they have limited the downside for investors.

Conversely, Templeton Emerging Markets Smaller Companies and JPM Emerging Markets Small Cap have among the largest maximum drawdowns suggesting that when they have made gains they have been more substantial.

Table of top and bottom 10 funds for monthly positive periods over 10yrs

 

Source: FE Analytics

Bottom of the list is HSBC GIF Global Emerging Markets Equity, which has made a bottom quartile return and maximum drawdown, as has next-lowest Pictet Emerging Markets.

Along with MFS Meridian Emerging Markets Equity, the three have all made positive returned in 61 of the 120 months, or 51 per cent of the time.

Overall, half of the 10 funds on the lowest list are in the fourth quartile for returns, with four in the second quartile.

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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.