Last year ended up being relatively flat for investors in most markets apart from US equities, long-dated government bonds and property. However, the first quarter of 2015 has seen many markets grind higher despite headwinds such as the looming UK general election, Greece’s debt negotiations with the eurozone and the prospect of interest rate rises.
However, it’s Russia – one of worst performers in 2014 after being hit by sanctions from the west, the falling oil price and a collapse in the rouble – which has had one of the strongest starts to the year.
The MSCI Russia index went up 24.45 per cent in the opening three months of the year, one of its healthiest quarters in three years, after the price of oil rallied from its former lows and the rouble was the strongest of 30 major currencies.
Against this backdrop, the highest returning investment company of 2015 so far has been Oleg Biryulyov’s JP Morgan Russian Securities trust, which is up 28.07 per cent. The fund has benefitted from a close to 30 per cent allocation to energy, although this is underweight its MSCI Russian 10/40 Equities benchmark.
As would be expected from a Russia fund, the trust has a volatile track record. While it has years of very high gains, such as the 142.21 per cent return in 2009 or the 100.62 per cent gain in 2005, it can also fall sharply like in 2008 when it lost 73.08 per cent and 2014 when it was down 46.60 per cent.
Performance of trust vs index over 2yrs
Source: FE Analytics
The next best performer invests much closer to home: the SVM UK Emerging trust, which is managed by Colin McLean with FE Alpha Manager Margaret Lawson as deputy. The trust is up 25.53 per cent over 2015 to date.
SVM UK Emerging focuses on smaller and medium sized UK companies, with top holdings including ITV Television, Unite Group and Workspace Group.
Smaller companies went through a difficult patch in 2014 after investors took profits, but the trust eked out a 2.16 per cent gain over one year while its average peer lost a similar amount. However, it does lag the sector significantly over three, five and 10-year periods.
Japanese equities also had a strong start to the year. The Nikkei 225 rose 14.84 per cent in sterling terms during the quarter and three of the top 10 performing trusts invest in the country, as the table below shows.
Source: FE Analytics
The JP Morgan Japanese Investment Trust, managed by Nicholas Weindling and Shoichi Mizusawa, is the highest returning Japan trust and third in the overall rankings. However, this is another fund that has underperformed its peers over longer time frames.
Eight of the first quarter’s best performing funds invest in Japan. Aside from the portfolios in the above table, trusts such as Baillie Gifford Shin Nippon, Fidelity Japanese Values and Atlantis Japan Growth have made more than the Nikkei 225.
Japan has rallied on the back of the ambitious Abenomics stimulus programme, but the country is still seen as a pocket of value in the global stock market. Jeremy Podger, manager of the Fidelity Global Special Situations fund, recently said: “It will inevitably take time to see an economic transformation in Japan.”
“But most crucially, the measures have rapidly reversed a decade of unhelpful currency appreciation and finally made Japan Inc. competitive again in a global context. Profits are rising faster now than anywhere else in the world, and this has given companies the ability to focus more on shareholder returns.”
In fourth place is a trust from the commodities and natural resources sector: Riverstone Energy. While many investors might have expected energy-focused portfolios to have a tough time, this trust was recently highlighted by Numis as one where returns aren’t based on oil price movements.
Riverstone Energy tends to invest in management teams that parent company Riverstone, which specialises in buyout and growth investments in the exploration & production, midstream, oilfield services, power and renewable sectors of the energy industry, has successfully backed in the past.
This ability to make returns despite a falling oil price means the trust is the best returning member of its 10-strong peer group since launch in October 2013, as well as over three, six and 12-month periods.
The International Biotechnology Trust is in fifth place, continuing the strong run that biotech has witnessed over the past few years. The fund is up 21.78 per cent over the year so far but it’s made 92.33 per cent over one year, 194 per cent over three, 286.04 per cent over five and 443.56 per cent over 10.
Some commentators have argued that the stratospheric rise of biotech stocks over recent years could mean the sector is in a bubble; however, its enthusiasts point out that valuations not much higher than the wider market’s and far below the levels they reached in 1999.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
Of course, past performance is no guide to future returns and one quarter’s data is a very short time frame on which to judge a fund. If there are any trusts you are expecting to have a strong 2015, please comment below and we’ll look at doing an in-depth review of the portfolio.