Money Observer Rated Funds: top performers in the third quarter of 2019

Money Observer Rated Funds in the Japan and specialist fund groups come to investors’ rescue.

Only one fund broke the 10% return barrier in the volatile third quarter to end-September. Following its top-spot showing in the first half of the year, LF Ruffer Gold was again the top performing fund with a 13.9% uplift. The fund invests in a 62-strong portfolio of gold and other precious metal-mining companies around the world.

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This leveraged exposure to gold, which smashed through the $1,500 barrier in early August for the first time since 2013, saw the fund comfortably beat the 9.2% return from fellow specialist Rated Fund iShares Physical Gold, an exchange traded commodity.

BlackRock World Mining, which has a more diversified portfolio of commodities-based companies, did not share in the lustre of the pure gold plays: it lost 3.6% over the quarter, a marked underperformance of the Commodities and natural resources sector.

Other members of the Specialist asset group, however, are conspicuous among the top-performing Rated Funds in the third quarter.

Pantheon International, the private equity specialist, posted an 8.7% return, putting it in fourth position. In a period where ‘risk-off’ rather than ‘risk-on’ strategies seemed to be the order of the day, Pantheon International’s performance seems all the more surprising.

However, the trust, which has £1.49 billion of assets, had a decent time at the portfolio level in August, generating £27.8 million of distributions from its diverse portfolio of private equity interests.  

Despite that, the discount to net asset value (NAV) widened to 23% from 19% in August, but was back down to a more normal 18% by the end of September.

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Global property shares were also popular in the volatile market environment. iShares Global Property Securities, an exchange traded fund that tracks the performance of a global index of property company shares, returned 8.4%, which was a slightly better show than the 6.7% return from the actively managed Fidelity Global Property. In the year to end September, however, the two global property choices are pretty much neck and neck, with a return in excess of 26%.

BMO Overseas Equity-Linked UK Inflation, another specialist choice that pursues a strategy of liability-matching popular with institutional investors, has also cemented its status as one of the top performers of 2019. Its 8.2% return in the third quarter means it is now up 33.2% on the year, a performance which is only bettered by the 47.4% return from LF Ruffer Gold.

Fidelity Global Technology fund shares top-ranking numbers in the year to date as well. Not only has the £3.6 billion fund returned 32.7% so far, but its third-quarter performance of 7.8% bucked the downward trend for other tech-oriented funds.

Fellow tech specialist Allianz Technology trust’s performance year to date is on a par with the Fidelity fund, but it lost 3.5% over the quarter. Over three years, however, the boot is on the other foot, with ATT’s 110% return far in excess of the Fidelity fund’s 81% return.

Japans winning run

Several Japan-oriented funds and trusts had a decent quarter, but this had more to do with the strength of the yen, which has safe-haven appeal, and the weakness of sterling, than it did with the performance of the underlying stocks they hold.

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Returns in August from Fidelity Japan IT, for example, were -1.3%, but at a net asset value level the portfolio lost 5.5%, so the share price return was flattered by a tightening in the trust’s discount to NAV.

Nevertheless, over the entire quarter the trust was up 9.7% – the second-best return from all Rated Funds – and the year to date has also been a good one with a 24.4% return. Both of our passive Japan ETF choices, iShares MSCI Japan SmallCap and iShares MSCI Japan, also feature among the quarter’s top performers – up 7.9% and 7.5% respectively. However, in local currency terms the benchmark indices are up just 2.8% and 2.2% respectively, demonstrating that currency movements were the biggest driver of return in the quarter.

Over the year to date the currency effect has also boosted returns from our Japan choices by a similar margin.

Legg Mason IF Japan and AXA Framlington Japan both returned 6.9%, just outside the top 10 for all funds, while HSBC Japan Index, a fund which tracks the entire Japanese market of large and medium-sized companies, was a smidgin behind them with a 6.4% return. Lindsell Train Japanese Equity completes the top performers list, up 6%.

Only Baillie Gifford Shin Nippon is letting the Japan side down with a barely negative loss over the quarter, and bringing up the rear of our Japan pack in the year to date with an 11% return.

However, this small company specialist has an outstanding longer-term record – up a stunning 590% over 10 years and 183% over five. And over the past three years the trust shares top billing with Fidelity Japan, with returns of around 58%.

Home challenges

As Brexit stasis continues unabated, UK government bonds have rallied – two of our passive choices, Vanguard UK Government Bond Index fund and iShares Core UK Gilts, gained 7% and 6% respectively.

Even the passive UK property play, iShares UK Property, bucked the uncertainty in the real estate sector with a 5% return, making a 15% gain year to date. BMO Commercial Property made a similar gain of 5.7%; however, a collapse in its discount to NAV since the start of the year (from around 7% in early January to as high as 20% in recent weeks) has resulted in a small loss at the share price level over the period.

The best UK equity-focused fund over the three-month period has been Royal London Sustainable Leaders. Its 5.9% return is far superior to the 1% return from the FTSE 100 index, as is the fund’s 25% gain since the start of the year. In comparison the FTSE All-Share index has gained 13.8%, which is a tad above the return for the FTSE 100 index.

Troy Income & Growth investment trust, which focuses on stocks that pay decent and rising dividends, is the next-best performing UK equities Rated Fund over the quarter. Its 5.3% gain over the quarter makes 18.9% for the year so far, putting it in first place among our core UK equity income choices, and on a par with the more adventurous selections Investec UK Equity Income and Montanaro UK Income.

Finally, it is interesting to note the presence of ‘minimum volatility’ ETFs in the upper echelons of the performance table in the third quarter. Both the MSCI World and S&P 500 versions make an appearance, with returns of 6.7% and 6.5% respectively.

It indicates that investors have been favouring ‘safer’ stocks over the growth and momentum stocks that have been driving the markets higher for several years. It also indicates that investors are beginning to pay more attention to fundamental valuations, and favouring certainty more than promise.

Top 20 Rated Funds in the third quarter

    % return and
official sector rank after:
Name Rated Fund group 3 months Quartile rank Year to date Quartile rank 3 years Quartile rank
LF Ruffer Gold Specialist 13.9   47.4   20.0  
Fidelity Japan IT Japanese equities 9.7 1 24.4 1 59.2 1
iShares Physical Gold Specialist 9.2 1 19.6 1 18.0 2
Pantheon International Specialist 8.7 1 17.8 2 45.9 2
iShares Global Property Securities Property 8.4 - 24.6 - 24.9 -
BMO Overseas Equity-Linked UK Inflation Specialist 8.2 - 33.2 - 45.9 -
iShares MSCI Japan SmallCap Japanese equities 7.9 2 13.8 - 25.7 3
Fidelity Global Technology Specialist 7.8 1 32.7 1 81.0 1
iShares MSCI Japan Japanese equities 7.5 2 14.7 2 26.1 3
Vanguard UK Government Bond Index Sterling bonds 7.0 1 12.6 1 10.8 1
Legg Mason IF Japan Japanese equities 6.9 1 25.0 1 35.0 1
AXA Framlington Japan Japanese equities 6.9 1 18.3 1 23.7 3
iShares Edge MSCI World Min Volatility ETF Global equities 6.7 1 23.5 1 41.0 1
Fidelity Global Property Property 6.7 - 24.3 - 27.7 -
iShares Edge S&P 500 Min Volatility ETF US equities 6.5 1 28.0 1 44.2 3
HSBC Japan Index Japanese equities 6.4 2 15.0 2 25.7 3
iShares Core UK Gilts Sterling bonds 6.2 2 11.1 1 9.5 2
Lindsell Train Japanese Equity Japanese equities 6.0 2 15.6 2 41.3 1
Royal London Sustainable Leaders UK equities 5.9 1 25.0 1 41.8 1
iShares UK Property Property 5.8 3 15.4 3 11.5 4

* Table shows top 20 of 266 Rated Funds ranked over three months to 1 October 2019. The quartile rankings refer to  a fund's ranking in its official industry sector. Data source: FE Analytics, as at 1 October 2019.


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