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Five years of rebound: The best performing funds and trusts

04 March 2014

The past five years have been far from easy, but the vast majority of funds have posted healthy returns since the FTSE bottomed out in March 2008.

By Joshua Ausden,

Editor, FE Trustnet

The average fund in the IMA universe has almost doubled investors’ money since the FTSE bottomed out in the aftermath of the Lehmans crash, FE Trustnet research shows.

Since 3 March 2009 when the FTSE closed at 3,512, the average fund – excluding those in the two money market sectors – has returned 96.5 per cent, according to FE data.

Our research shows that the average fund has underperformed the FTSE 100 by a relatively small margin, even though the list of funds includes those with equity, bond, property and multi-asset focuses. The average pure equity fund has returned 130.6 per cent, falling short of the index by 1.6 percentage points.

Only 25 of the 2,245 funds with a long enough track record have lost money over the period. This represents just 1.1 per cent of the total. Thirty-six – or 1.6 per cent – have underperformed cash, while 96 have failed to keep up with the pace of inflation, measured by the consumer prices index.

Most of the funds that have lost money invest in gold equities, property or niche fixed interest markets, though there are a handful of more mainstream equity funds that are in the red.

These include the SVM Global Opportunities and Manek Growth funds, which are down 0.19 and 8.71 per cent, respectively.

The worst performer overall has been the CF Ruffer Baker Steel Gold fund, which is down more than 20 per cent.

Performance of portfolios vs indices since 3 March 2009


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Source: FE Analytics

Investment trusts have fared even better than their open-ended counterparts, with the average one returning 147.4 per cent since 3 March 2009.

The vast majority of closed-ended funds are entirely equity-focused and many have benefited from gearing and narrowing discounts over the period. Looking at the best-performing investment funds and trusts since the dark days of March 2009, some of the numbers are hard to believe.

FE Alpha Manager John McClure’s Acorn Income IT has returned an incredible 669.6 per cent over the period, thanks to a huge swing in its discount, a high level of gearing and of course very strong NAV performance.

A £1,000 investment in the trust on 3 March 2009 would now be worth £7,696, FE Analytics data shows. By contrast, the same lump sum invested in the trust’s Numis Smaller Companies benchmark would be worth £3,283.


Performance of £1,000 invested in trust and index since Mar 2009

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Source: FE Analytics

McClure’s trust wasn’t quite top of the tree in the investment trust universe, however.

Three trusts – GLI Finance Limited, Marwyn Value Investors IT and European Real Estate IT – have returned more than 1,000 per cent in the past five years or so.

All are very niche and relatively illiquid, with less than £250m in assets under management (AUM) between them.

Looking more broadly at the top performing investment trusts, it has been those with a high risk profile that dominate – unsurprising given that the last five years have delivered one of the best discrete periods of equity market performance over the past 30 years.

UK small cap trusts feature prominently, with Chelverton Small Companies Dividend IT, Henderson Smaller Companies IT and BlackRock Smaller Companies IT all delivering in excess of 450 per cent.

It has been the same case in the IMA universe, with eight of the top performing open-ended funds since 3 March 2009 having a UK small to mid cap focus.

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Source: FE Analytics

Ed Legget’s Standard Life UK Equity Unconstrained fund is the lone mid to large cap focused fund on the list.

The manager has a deep value bias, looking for companies whose cash-flow capabilities are unloved by the wider market.

AFI panellist Chris Wise recently told FE Trustnet that he was putting his full ISA allowance into the fund this year.

Within asset classes, again it’s been those that have been willing to take on more risk that have performed the strongest.


High yield bond funds have done extremely well, with a handful – including the Invesco Perpetual High Yield and Marlborough High Yield Fixed Interest funds – delivering returns in excess of the FTSE 100 over the past five years or so.

Multi-asset funds that have maxed out their equity content, such as Unicorn Mastertrust and Investec Managed Growth, are top of the tables, and funds with a focus on small and mid caps, as well as cyclical sectors in the market, have excelled in most global equity sectors.

Among investment trusts, the likes of James Anderson’s Scottish Mortgage Investment Trust, which generally has a very high beta, has returned more than 300 per cent since March 2009.

This makes it the best performing trust in the IT Global sector by some distance.

The one exception where it has paid to be more defensive during the five years has been emerging markets, which have had a very poor time of late.

Small cap focused funds such as Aberdeen Global Emerging Markets Smaller Companies and JPM Emerging Markets Small Cap are once again standout performers, but elsewhere funds with more of a focus on quality and downside protection such as Matthew Dobbs’ Schroder Asian Alpha Plus fund and David Gait’s First State Asia Pacific Sustainability fund have done much better.

While the study shows investors exactly what they could have got if they invested at the perfect time, in reality very few invested at the bottom of the market.

The panic sweeping through the financial system and the severe losses endured in 2007 and 2008 meant that much of the trading during the Lehman crisis involved panic selling rather than buying.

According to data from the IMA, 2008 was by far the worst for equity fund sales since records began, and the only year that has seen net outflows.

Just over £1.16bn was pulled out of equity funds over the 12-month period, compared with inflows of more than £11bn in 2013.

The next year was much better from a sales point of view, with £7.8bn going into equity funds, but most of this money came in the second half of the year after markets had already begun to rebound.

Ben Willis (pictured), AFI panellist and head of research at Whitechurch Securities, says that the stellar returns of the last five years show the importance of being patient when those around you are panicking.

ALT_TAG “It is human nature to panic when market sentiment turns negative, but if you can distance yourself from that mind-set it can present you with a very good opportunity to buy,” he said.

“Of course you’d have to be very lucky to get your timing spot-on. If you’re too late, as long as you’ve gotten in at a historically cheap level and are patient, historically you’d have a very good chance of outperforming.”

“Though it’s easier said than done, if you are too early it can be very rewarding to buy more as the market falls. We saw a number of managers doing this such as Ed Legget, who started buying into retailers and other unloved areas of the market in December 2008.”

“He was too early, but if you look at his performance in 2009 he was one of the best.”

Willis says a number of his clients’ portfolio had a tough time in 2008 during the crash, but he took the decision to retain his risk exposure.

“Rather than panic-sell we took the decision not to crystallise our losses. When you consider that a lot of the sellers were institutional investors who were forced to de-risk, we felt the reaction was over the top,” he added.

Bruce Stout, manager of the Murray International IT, agrees, insisting that financial markets are far more resilient that many give them credit for.

“We’ve gone through two World Wars and numerous financial crashes – even England winning the World Cup,” the Edinburgh-based manager told FE Trustnet.

“All jokes aside, markets are incredibly resilient.”


Speaking about the current buying opportunity in emerging markets – which have had a very poor time over the past two years – Stout added: “The best opportunities arise when emotions get involved.”

For investors looking to part with their money now, Willis says it’s important to learn the lessons of the past five years and pick areas of the market that are out of favour.

He accepts that there is far less choice on offer now than in the depths of the financial crisis – especially in developed market equities and mid caps – but is confident certain areas can deliver over the next five years.

“You’ve got to look at where the best opportunities are, which at the moment is emerging markets and to a certain extent the Asia Pacific and commodities,” he said.

“It’s the same principle as buying into equities in 2009 – they were unloved and underappreciated.”

“Relative to history and other asset classes, emerging markets are very cheap. On a five-year view I think they’re a good place to be – though I would stress that investors in emerging markets should probably have a time horizon even longer than this.”

Willis also likes Europe, which he spoke about in more detail in an FE Trustnet article last week.

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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.