The 10 best-performing funds of 2018

The key to outperforming the market in 2018 was to run a portfolio with a concentration of large high-growth US tech companies.

Funds and Investment Trusts December 18, 2018 by Tom Bailey

The key to outperforming the market in 2018 was to run a portfolio with a concentration of large high-growth US tech companies, according to data showing the returns provided by investment funds over the past year.

Despite the heavy selling of tech stocks over the past few months, US tech-focused funds have provided investors with some of the highest returns since the start of the year.

Topping the table for the best performing fund of 2018 is Baillie Gifford American, which achieved a total return of 22.7%. (Performance measured from 31 December 2017 to 10 December 2018 in sterling, on a total return basis.)

The fund has a Faang (Facebook, Amazon, Apple, Netflix, Google)-heavy portfolio, with over 9% invested in Amazon, 5.5% in Netflix and 4.2% in Google’s Alphabet. However, notwithstanding the recent dip and in contrast to the S&P 500 index’s roughly flat performance over the year to date, Netflix is still up by around 30% and Amazon by roughly 27%.

Laura Suter, personal finance analyst at investment platform AJ Bell, notes: “The S&P 500 index is down 2% this year, with the Baillie Gifford fund up [22.7%], showing that the manager’s concentrated portfolio and superior stock picking has delivered this year.”

Morgan Stanley US Growth, Neptune Global Technology, T. Rowe Price US Large Cap Growth Equity and Seilern Stryx America also all made a strong showing; all have large US tech holdings.  

The second strongest performer was GAM Star Alpha Technology, another tech-focused US fund, which provided a return of 21.5%. Alongside holding some household tech names, the fund includes lesser-known names such as business communications company Avaya Holdings and unlisted artificial intelligence firm Afiniti International.

Also among the top performers were US-focused healthcare companies such as Fidelity Global Health Care and Polar Capital Healthcare Opportunities. While less high-profile than Faang and other similar elite tech stocks, healthcare (including biotech) stocks exhibit similar characteristics – principally high growth.

However, warns Suter, the outperformance of growth-focused funds may soon come to an end. He notes: “These managers all have a style tilt towards ‘growth’ stocks, which have outperformed this year, meaning that when this style is out of favour they will likely underperform the market.”

President Donald Trump’s tax cut was an added bonus to both US tech and healthcare funds. As Adrian Lowcock of Willis Owen notes, “the US also benefited from a significant boost in corporate earnings as President Trump’s tax reforms worked through the system and boosted the US dollar to the benefit of UK-based investors”.

According to Lowcock, the returns shown underline the importance of UK investors gaining international exposure: “In a year where volatility returned in force, British investors have once again benefited from having overseas exposure, as the pound remained vulnerable due to Brexit uncertainty.”

The only fund among the top 10 not focused on US equities was JPM Emerging Middle East Equity, which returned 15%.

Funds Percentage Return
Baillie Gifford American 22.07
GAM Star Alpha Technology 21.53
Polar Capital Healthcare Opportunities 19.98
Morgan Stanley US Growth 19.22
Neptune Global Technology 17.91
Brown Advisory US Sustainable Growth 17.78
Seilern Stryx America 15.74
Fidelity Global Health Care 15.46
JPM Emerging Middle East Equity 15.03
T. Rowe Price US Large Cap Growth Equity 14.74

*Source FE Analytics, performance from 31st December 2017 to 10th December 2018 in pounds sterling on a total return basis

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