UK smaller companies, global and Asia fund selections prospered, while only three winners are in the red.
The past year saw global stock markets reach record highs. But amid the positives has been a certain amount of trauma for investors to endure: the threat of a trade war between the US and China, tensions in the Middle East and Korea, economic issues in South America, not to mention Brexit uncertainty. Nonetheless, against a mixed backdrop, many of our award winners have put in strong performances, with just three of the cohort of 39 in the red over the past year.
The top performer of the lot, Amati UK Smaller Companies, has produced an impressive return of 26.5 per cent – almost double the 14.8 per cent average return achieved in the UK smaller companies fund sector. Manager Paul Jourdan says technology names such as GB Group and Keywords Studios have helped boost performance, and that ‘companies that fail to innovate or are stuck with legacy systems or assets continue to struggle’.
The fund has returned more than three times the amount of our highly commended UK smaller companies fund, Discretionary Unit, which is up just 8.3 per cent.
-The winners for 2018 can be found here.
Our Asian fund winners have also delivered impressive performances. Veritas Asian has returned 23 per cent over the past year – the second-best performer among our winning line-up – and Hermes Asia ex Japan Equity 17 per cent. A large 22 per cent weighting to information technology has helped drive Veritas forward in the year, as investors have looked to up-and-coming emerging market tech firms as an alternative to the US tech giants that have dominated the sector in recent years.
Yet while our Asia funds have thrived, our Japan winners have lagged their peers. M&G Japan Smaller Companies has returned 16 per cent over the past year, compared to a sector average of 25.7 per cent. Manager Johan Du Preez says Mazda Motor was among holdings that held back returns. The carmaker has been impacted by the effects of a stronger yen on its global sales. Our highly commended Japan fund, Morant Wright Nippon Yield, has come in just short of its sector average, with returns of 15.2 per cent versus the sector’s 16.2 per cent.
Just three of our fund winners are in the red over the year. Marlborough Global Bond and Schroder Global High Yield Bond both underperformed their sector average in a year when central banks finally started to increase interest rates, making life tricky for bond fund managers. The Marlborough fund has a hugely diverse portfolio, with more than 480 government and corporate bond holdings, but a cautious approach has seen it edge down 0.1 per cent over the past year, compared to an average gain of 0.1 per cent in the global bond sector. The Schroder fund was the worst performer among our cohort, down 1.7 per cent over the year.
Long-time outperformer Trojan Income is the third among our winners to turn in a negative performance for the year, undershooting the UK equity income sector with a loss of 0.4 per cent compared to an average gain of 5.7 per cent. The fund typically avoids the cyclical businesses which have come back into favour of late and, as a result, often lags in strongly rising markets.
Fundsmith Equity has slipped out of the top quartile of the global sector in recent months. Unusually, the top-performing fund has been outperformed by our runner-up over the past year. Fundsmith returned 12.8 per cent compared to 13.8 per cent from Artemis Global Growth. The Artemis fund is one of eight highly commended investments that have beaten the winning fund in their award category.
Fundsmith may well have been held back by its large exposure to the US, which accounts for some 61 per cent of the fund’s portfolio; Artemis fund manager Peter Saacke says European equities were some of the strongest performers over the year to the end of March, while the US and emerging markets lagged.
Our bricks and mortar fund choice has led the way in the property sector as the post-Brexit jitters around the sector have eased. L&G UK Property is up 8.4 per cent over the past year, helped by its regional diversification. The fund has just 7.8 per cent of its assets in London, where there are still concerns about the outlook for the property market; it is feared that office space could struggle if companies move to the continent when the UK leaves the EU.
But the fund’s highest allocation is to industrial space, which has experienced a strong bout of demand as retailers tapping into the trend for online shopping increasingly focus on warehouse and distribution space. While more than 20 per cent of the fund’s assets are in cash, that does not seem to have dragged on performance, although it is yielding just 2.8 per cent.
US fund outshines peers
The US stock market is a notoriously difficult one for fund managers to beat. While the Miton US Opportunities fund was slightly off the mark – the fund returned 12.5 per cent over the past year compared to 12.8 per cent from the S&P 500 – it outshone its peer group. Manager Hugh Grieves says an underweight position in energy stocks has hampered performance. Our runner-up in the North America category, Schroder US Mid Cap, has struggled to a far greater extent though, returning 5 per cent over the past year – just half the sector average. Manager Jenny Jones says stock selection has been ‘disappointing’, particularly in healthcare.
Ethical funds have historically battled the misconception that investors must sacrifice returns to invest responsibly. The Rathbone Ethical Bond fund certainly proves that is not the case – the fund has returned 2.5 per cent over the past year, making it the top performer of a 94-strong sector where the average performance over that period was just 0.4 per cent.
Our winners were selected for their risk-adjusted returns on a three-year basis, so the fact they have not all shot the lights out over the past 12 months should not be cause for undue concern. Among their number are some funds which have put in admirable performances in difficult market conditions. As volatility creeps back into global stock markets, their fortunes may change again, for better or worse.
|Fund||Category||1 year (%)||Sector average (%)||Sector|
|Liontrust Special Situations||Larger UK Growth||12.5||8.3||UK all cos|
|Old Mutual UK Dynamic Eq||Larger UK Growth||13||8.3||UK all cos|
|Buffettology||Smaller UK Growth||17.3||8.3||UK all cos|
|Threadneedle UK Ext Alpha||Smaller UK Growth||6.4||8.3||UK all cos|
|Evenlode Income||Larger UK EI||7.7||8.3||UK all cos|
|Trojan Income||Larger UK EI||-0.4||5.7||UK equity inc|
|Franklin UK Rising Dividends||Smaller UK EI||2.7||8.3||UK all cos|
|Kames UK Equity Income||Smaller UK EI||5.1||5.7||UK equity inc|
|Amati UK Smaller Cos||UK Small/Mid Cap||26.5||14.8||UK smaller cos|
|Discretionary Unit||UK Small/Mid Cap||8.3||n/a||Unclassified|
|F&C Responsible Global Eq||Ethical/SRI Equity||13.2||9.6||Global|
|Fundsmith Equity||Larger Glbl Growth||12.8||9.6||Global|
|Artemis Global Growth||Larger Glbl Growth||13.8||9.6||Global|
|Artemis Global Select||Smaller Glbl Growth||13.7||9.6||Global|
|Premier Global Alpha Growth||Smaller Glbl Growth||16.4||9.6||Global|
|Newton Global Income||GEI||1.5||4.8||Global eq inc|
|Sarasin Global Higher Dividend||GEI||6||4.8||Global eq inc|
|Templeton Em Mkts Smaller Cos||GEM||4.2||8.9||Global em mkts|
|JPM Em Mkts Small Cap||GEM||7.8||8.9||Global em mkts|
|Miton US Opportunities||North America||12.5||10||North America|
|Schroder US Mid Cap||North America||5||10||North America|
|Liontrust European Growth||Europe||5||7||Europe ex UK|
|Threadneedle European Sm Cos||Europe||14.7||11.8||European sm cos|
|M&G Japan Smaller Cos||Japan||16||25.7||Japanese sm cos|
|Morant Wright Nippon Yield||Japan||15.2||16.2||Japan|
|Veritas Asian||AP ex Japan||23||12.3||AP ex Japan|
|Hermes Asia ex Japan Equity||AP ex Japan||17||12.3||AP ex Japan|
|GAM Star Credit Opps||Sterling Bond||5.6||1.1||£ strategic bond|
|Jupiter Strategic Bond||Sterling Bond||0.2||1.1||£ strategic bond|
|Marlborough Global Bond||Global Bond||-0.1||0.1||Global bonds|
|Schroder Global High Yield||Global Bond||-1.7||0.1||Global bonds|
|Rathbone Ethical Bond||Ethical Bond||2.5||0.4||£ corporate bond|
|Orbis Global Balanced Standard||Higher Risk MA||6.1||5.5||Mixed inv 40-85% shrs|
|Premier Multi Asset Glbl Growth||Higher Risk MA||7.7||6.3||Flexible investment|
|Artemis Monthly Distribution||Lower Risk MA||3.3||3.2||Mixed inv 20-60% shrs|
|Old Mutual Cirilium Conservative||Lower Risk MA||1.8||1.5||Mixed inv 0-35% shrs|
|Royal London Sustainable World||Ethical MA||12||5.5||Mixed inv 40-85% shrs|
|L&G UK Property||Physical Property||8.4||5.5||Property|
|First State Global Property Secs||Property Secs||4.4||5.5||Property|
Names in bold were 2017 winners; non-bold names were highly commended. Source: Trustnet, as at 16 May 2018
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