Which investment funds have been Christmas stars and which fallen angels?

Patrick Thomas and Jordan Sriharan place funds at the top and bottom of 2019s investment Christmas tree.

As Christmas looms, we review 2019 – a year of volatility, continued trade wars and not being any further along with Brexit than at the same time last year. Or the year before. But where risk assets tanked in 2018, this year, risk assets performed heroically.  

The bull market has trudged on and while we don’t seem to be close to a recession at the moment, investors are becoming more cautious. There has been a rotation from growth investing into value. The market has witnessed this periodic reversal in equity style twice in the past three years – how long will this rotation last? 

We’re probably all sick of hearing about Neil Woodford, which has been for the business and investment newspaper pages, what the “B” word has been for newspapers’ front pages. And although Woodford is the most high-profile fallen angel, he isn’t the only one. Here we take a look at what’s shimmered and what, well, hasn’t.

Christmas stars

Impax Environmental Markets: the fund has annualised 9% over the past 15 years. This is well ahead of both the global equity peer group and FTSE All Share. The attraction with this fund is that it genuinely unearths smaller companies that are making the world more environmentally friendly, and these firms tend to be heavily under-represented in traditional benchmarks. We see this fund getting more publicity as the world continues to become increasingly focused on environmental risk.

Trojan Ethical Income: over three years, this fund has almost doubled the performance of its unrestricted parent, Trojan Income Fund, and the UK equity income peer group. We view fund manager Hugo Ure as a relatively young and underrated talent, who has learned a lot from his mentor Francis Brooke. The defensive qualities of this fund came to the fore in 2018, and we see it as being helpful in a volatile UK equity environment. 

Edinburgh Worldwide: less well heralded than its Baillie Gifford stablemates, Scottish Mortgage and Monks, but with comparable performance. Given the focus on businesses choosing to stay private for longer, this is an attractive way of capturing some of that early value. Manager Douglas Brodie has invested early in businesses such as Skyscanner and SpaceX.  

Fallen angels

Absolute return funds: or “diversified growth” funds as they’re known as in the pension world. This is probably the biggest fund turkey this year because of the sector’s massive fall from grace after a decade of underperformance. Previously dominated by the heavyweights of Aberdeen Standard’s GARs, Invesco Perpetual’s Total Return Strategy and more recently Aviva AIMs, outflows have been continuous as performance has continued to flag. That said, the sector had a small bounce in 2019 but it will do little to deter investors who had previously relied on the sector to provide them with “alternative-like” exposure. They provided little protection when markets tanked in 2018 and offered little upside when they rallied this year. All in all, a group of funds that have managed to underperform under all market environments.

Scottish Mortgage Investment Trust: while the long-term track record is still excellent, this fund has had a poor year. It underperformed the benchmark for the first half of 2019 and the trust now trades at a discount to its net asset value. Its lacklustre performance has been partly owing to slower than expected growth of its healthcare investments. One of the attractions of this fund has historically been the exposure to unlisted technology “unicorns” but this is a story that has soured a little. There have been a number of failed or disappointing IPOs this year with a lot of value lost in some very hyped companies (Lyft, Uber, WeWork). The fund was invested only in Lyft and did avoid the other two, but investors have become wary of this kind of exposure, and this has hurt the share price. 

Mark Barnett at Invesco: it would seem that the Woodford scandal didn’t just end with the demise of the infamous star fund manager, the winding up of his flagship Woodford Equity Income fund, the management of Patient Capital being transferred to Schroders, and the suspension of Woodford Income Focus. The toxicity has spread to his protégé at Invesco, Mark Barnett. Morningstar has recently downgraded both the funds he oversees owing to their exposure to the small-cap sector and any prospective illiquidity issues they might face. Desperate to stave off investor redemptions, Invesco is firefighting any criticisms levied at Invesco Income and High Income. Time will tell.

Patrick Thomas is head of ESG and investment director, and Jordan Sriharan is head of MPS and passive at Canaccord Genuity Wealth Management.

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