Bullion and gold mining in particular have bounced back from a disastrous period in 2012 and 2013, with the average fund returning a healthy 15.96 per cent year-to-date. FE data shows the Way Charteris Gold Portfolio has been the best performer overall, delivering 28.16 per cent.
Larger, high profile funds such as Smith & Williamson Gold & Resources and BlackRock Gold & General weren’t far behind, making 24.8 and 19.25 per cent, respectively. The SF Webb Capital Smaller Companies Gold portfolio has significantly bought down the average with losses of almost 15 per cent.
As well as historically cheap valuations in miners, the gold price has been boosted this year by the social and political tensions in Ukraine and more recently Iraq.
Source: FE Analytics
Gold funds have been outstripped by those with an Indian focus however. Indian markets have had the biggest six month surge for more than four-and-a-half years, helping the average India fund to gains of 21.14 per cent.
Foreign and domestic money has flowed into the market following the new Narendra Modi-led government coming into power in May. Investors are hopefully that Modi’s ambitious policies will try help turn around an economy that has seen sub-5 per cent growth for two consecutive years.
The $2.4bn HSBC GIF Indian Equity fund has been number one in the entire IMA universe [37.38 per cent] in 2014, and is one of only two funds to deliver over 30 per cent. Matthews Asia India, Baring India and Jupiter India Select are among those that made it into the top-10.
The worst performing India fund – Aberdeen Global Indian Equity – has still managed to bad over 17 per cent so far this year. The one fund that made it into the top-23 that wasn’t Indian or gold-focused is another specialist vehicle – the JPM Turkey Equity fund, which has returned 23.6 per cent.
The list of best-performers supports the “buy underperforming funds” theory. All of the 17 best performing funds so far this year lost money last year, even though the MSCI AC World index made more than 20 per cent. FE Trustnet examined this theory in more detail in a recent article.
Looking at more mainstream areas, it’s been the lower volatility income paying sectors that have done best. IMA Property is number one overall, though returns of 5.6 per cent are hardly stellar – particularly when compared to the performance of most equity sectors since 2012.
Property funds with a global and European focus lead the way; FE data shows that Henderson Horizon Pan European Property Equities, BNY Mellon Global Property Securities, Premier Pan European Property and Old Mutual Global Property Securities have all made double digit returns.
Flows into property funds have made a dramatic turnaround of late following years of resentment post financial crisis. Investors are increasingly using them as an income alternative to bonds, particularly with interest rate rises on the horizon.
With the exception of IMA Global Bonds, all of the fixed interest sectors have returned more than 3.5 per cent and make it into the top-10. UK gilts in particular have benefited from the flight to safety, in light of a more turbulent period for equities in recent months.
Source: FE Analytics
Looking at equity sectors, emerging markets have performed much better after a miserable period between 2012 and 2013. The average fund in IMA Global Emerging Markets has made 2.36 per cent, with small cap funds such as Somerset Emerging Markets Small Cap and Camignac Emerging Discovery leading the way.
Asia Pacific ex Japan funds have also had a better period. After a difficult 2012, FE Alpha Manager Angus Tulloch’s First State Asia Pacific fund has returned to form, returning 8.73 per cent in 2014. The First State Asia Pacific Sustainability and First State Asia Pacific Leaders portfolios have also been top quartile performers.
Performance of funds, index and sector in 2014
Source: FE Analytics
While emerging market performance has improved, many industry experts point to them as a “screaming buy” given where valuations stand against historic averages.
Aside from that, IMA sectors have trended broadly sideways, giving back the gains they made in the early part of the year. Global, European, UK, North American and Japanese sectors have all returned between -3 and 3.5 per cent.
Japanese funds had a very difficult start to the year, which Ruffer’s Steve Russell said was a result of the market trying to put pressure on the government to implement more quantitative easing. Strong levels of earnings growth has seen returns improve of late however, and the average IMA Japan fund is currently sitting on losses of 2.88 per cent.
A handful of funds such as CF Morant Wright Nippon Yield and AXA Framlington Japan have managed to eke out positive returns of 3.56 and 2.93 per cent, respectively.
IMA China/Greater China stands alone with losses of 4.41 per cent, thanks largely to big earnings downgrades and growing concerns over the property slowdown. The falls have recently prompted Artemis Global Income’s Jacob De Tusch-Lec to declare China as the “cheapest stock market in the world”, which he will talk about in more detail in an upcoming article.
Three of the 10 worst-performing funds have a China focus: Neptune China, Neptune China Special Situations and Invesco Perpetual PRC Equity. However, as was the case at the top of the list, specialist funds dominate the list of bottom-dwellers.
Source: FE Analytics
Russia funds have seen an improvement in performance in recent months but the initial shock after the Ukrainian crisis means they continue to dominate the worst-performers list.
While IMA UK Smaller Companies has lost less than 1 per cent as a unit, it’s been a disappointing year for managers who invest in small and mid-caps. The FTSE 250, AIM and Small Cap indices had a fantastic 2012 and 2013 and began 2014 in the same vein, only to fall significantly in March following a series of earnings downgrades. The likes of Baillie Gifford British Smaller Companies, Allianz UK Mid Cap and M&G Smaller Companies have lost in excess of 5 per cent, but it’s been star manager Harry Nimmo (pictured) who has made the headlines for the wrong reasons.
His Standard Life UK Smaller Companies and Global Smaller Companies funds have lost 9.66 and 9.44 per cent respectively, thanks to a host of companies losing double digit returns. Major earnings downgrades in Rightmove and ASOS – which the manager has recently sold out of – have been particularly hurtful.
Large caps have been a much better place to be for UK equity managers, which have benefited from the flight to safety. Fund managers have also become increasingly attracted to cheaper valuations in the FTSE 100, taking profits in the smaller-cap indices.
In the popular IMA UK Equity Income and IMA UK All Companies sectors, naturally defensive managers with a bias to mega caps have led the way, such as Mark Barnett’s Invesco Perpetual UK Strategic Income fund, Francis Brooke’s Trojan Income fund and Neil Woodford’s SJP UK High Income fund posting top quartile returns.
Performance of funds and sector in 2014
Source: FE Analytics
Some mid-cap funds have performed well thanks to stock specific successes however, like MFM Slater Growth and Neptune UK Mid Cap, which are up 8.39 and 6.08 per cent, respectively.
Another notable performer at the bottom of the list is Hugh Hendry’s CF Eclectica Absolute Macro portfolio. The highly rated manager raised eyebrows at the end of last year when he said he was raising his risk exposure even though he was unconvinced by the global economic recovery.
Eclectica’s long position in Japan cost him dear in the early stages of the year, contributing to the fund’s losses of almost 9 per cent this year – particularly concerning given that it sits in IMA Targeted Absolute Return.
FE Trustnet will ask experts to forecast what they expect from markets for the rest of the year in an upcoming article.
In an article later today we will look at the best- and worst-performing investment trusts of 2014.
