Japan, China and specialist Russia and Korea equity funds dominate the list of top-performing open-ended investment vehicles in 2015 overall, according to data from FE Analytics, while funds with a small-cap bias lead the way in the UK sectors.
Of the top-10 performing funds listed below, four are listed in the IA Specialist sector – two of these are Korea funds and two of these are Russian funds.
A further two funds on the list reside in the IA China/Greater China sector, three are in IA Japan and one is in IA European Smaller Companies.
Source: FE Analytics
The top-performing fund so far this year is Invesco Korean Equity, which has five FE Crowns and is managed by FE Alpha Manager Simon Jeong. Since the start of the year, it has delivered 29.83 per cent worth of returns to investors, outperforming its KOSPI PR index more than five times over.
Performance of fund vs benchmark in 2015
Source: FE Analytics
Another Korean portfolio has also made it into the top 10 – the £107m Baring Korea Trust fund, which has returned 21.48 per cent this year, yields 0.2 per cent and has a clean OCF of 0.94 per cent.
Korea, Asia’s fourth-largest economy, has fared particularly well in 2015 having been out of favour compared to Asia’s faster growing countries in recent years.
Cheap valuations compared to other countries in the region have made Korea far more appealing following rallying markets in India, Japan and China. Foreign investors bought approximately £4.35bn in Korean stocks in the first five months of this year alone, partially as a result of an increasing fascination with Korean culture known as ‘the K Wave’.
The Japanese market has also done particularly well in 2015, following a series of macro tailwinds boosting performance and increasing global appetite.
October 2014 saw the Bank of Japan administer a second round of quantitative easing in a bid to fight deflation, aiming to expand the monetary base from ¥60trn to ¥70trn each year.
This was further boosted by the re-election of Japanese Prime Minister Shinzo Abe, the founder of the ‘three-arrowed’ economic policy of Abenomics.
To make matters even better for the East Asian island, improvements in corporate governance in 2015 have instilled optimism in investors, and the plummeting oil price has increased the spending power of consumers.
Michael Lindsell’s Lindsell Train Japanese Equity fund is second on the list of best-performing funds, providing 25.48 per cent for investors and doubling the return of the IA Japan sector average in the process.
Performance of fund vs sector and benchmark in 2015
Source: FE Analytics
The £56m fund is highly concentrated and is made up of between 20 and 35 stocks at any one time. Characteristically from Lindsell, the fund also has a low stock turnover.
The fund has benefited from a 41 per cent weighting to consumer goods stocks, which have been one of the biggest beneficiaries of the points mentioned above. The other two biggest weightings are to pharmaceuticals and telecom, media & technology, both at 23.3 per cent.
Lindsell Train Japanese Equity is currently hedged, to minimise to impact of the weakening yen on UK investors. The fund has an ongoing charges figure (OCF) of 1.23 per cent.
Also on the top-10 list is Legg Mason IF Japan Equity which has a clean OCF of 1.12 per cent and has returned 21.51 per cent this year.
The third fund on the list is something of an anomaly. Carmignac Ptf Euro Entrepreneurs, which has returned 23.58 per cent this year, is a £38m European Smaller Companies fund managed by Malte Heininger since 2014.
While tensions continue to rise as the prospect of a Greek default looms ever closer, European funds has proven to be a popular area to invest in this year thanks largely to the ECB's quantitative easing programme.
Russia continues to be unloved, yet that hasn't stopped it being one of the best performing markets of 2015. Russia funds have delivered strong returns across the board, despite a shaky start and end to the six month period thanks to fears over the Ukraine conflict, a freefalling rouble and plummeting oil prices.
However, the rouble has since appreciated, government bond prices have risen and the price of oil has stabilised, benefitting oil exporting countries.
The fourth top-performing fund this year is Pictet Russian Equities, which has delivered a total return so far of 22.53 per cent. However, it has underperformed its MSCI Russia 10-40 benchmark.
Performance of fund vs benchmark in 2015
Source: FE Analytics
The fund, which is managed by Hugo Bain and Klaus Bockstaller, is £81.2 in size and has an OCF of 1.44 per cent. Also performing well this year is Baring Russia, which is just £28.6m in size and has an OCF of 2.15 per cent.
Russia isn’t the only emerging market to be hot on the heels of developed markets – trust in China's long-term story has gathered momentum with investors of late, including Canada Life Investments’ David Marchant.
“There are lots of stories about weakening growth in China, but if you look at the market this year, Chinese equities are up more than 40 per cent year-to-date – you hear less about that,” he said in an interview with FE Trustnet last week.
“While there are risks in China – the level of debt there is a problem and their population is aging – there’s a lot of reform opening up in the markets that is beneficial for the Chinese stock market.”
A lot of investors are worried that China is in bubble territory given the stock market gains have occured even as GDP growth has slowed.
Others argue that this bubble is already bursting, with the Shanghai Stock Exchange Composite index plummeting by 8.76 per cent over the past week.
Nevertheless, GAM Star China Equity is eighth on the top 10 list, delivering returns of 20.68 per cent in the first six months of the year and almost doubling the performance of its sector average in the process.
Performance of fund vs sector in 2015
Source: FE Analytics
Manager Michael Lai has a high-conviction approach and volatility has tended to be much higher than its sector average, meaning this fund is perhaps best suited to the strong-stomached investor. GAM Star China Equity has a clean OCF of 1.56 per cent and yields 0.37 per cent.
Another fund that is reaping the benefits of China’s success is Matthews Asia China Dividend, which is just £4.8m in size and has delivered a total return of 19.87 per cent year-to-date. It has a clean OCF of 1.5 per cent and yields 2.42 per cent.
Aside from the 10 best-performing funds, biotech funds such as Pictet Biotech and Polar Capital Biotechnology have delivered eye-catching performance this year, returning 18.88 and 18.85 per cent respectively. This comes in spite of the sector being the best performer of the last five years; the NASDAQ OMX Biotechnology index is now up 365.31 per cent over five years compared to the MSCI World index’s return of 76.01 per cent.
Performance of indices over 5yrs
Source: FE Analytics
Other funds that are perhaps predictably performing well this year are small-cap funds, which have generally thrived as a result of a majority, pro-business government and a stable UK economy, as discussed in an FE Trustnet article last week. Behind China and Japan sectors, IA UK Smaller Companies is the best-performing sector year-to-date.
The £3.3m MFM Techinvest Special Situations, for example, is managed by Conor McCarthy and Darren Freemantle and has outperformed its sector average by more than 7 percentage points since the start of the year, achieving a total return of 18.28 per cent. The smaller companies fund has a clean OCF of 1.77 per cent and yields 0.08 per cent.
Other similar funds that are worthy of note for their strong performances this year are Franklin UK Smaller Companies, FP Miton Undervalued Assets and Aberdeen UK Small Cap Equity, all of which have achieved top-decile returns so far in 2015.
The theme is also evident in the UK Equity Income and UK All Companies sectors. In the former, all eight of the top-performing funds in 2015 have a small or at the very least multi-cap focus, including Elite Webb Capital Smaller Companies Income & Growth and PFS Chelverton UK Equity Income, which are both up more than 12 per cent.
CF Miton UK Multi Cap Income, managed by Gervais Williams and Martin Turner, is another standout performer, returning 10.69 per cent so far. The five-crown rated fund has 35.2 per cent in AIM stocks, 17.6 per cent in FTSE Small Cap stocks and 22 per cent in FTSE 250 stocks.
In IA UK All Companies, funds that focus on the smaller end of the market cap spectrum also dominate, with Neptune UK Mid Cap, CF Miton Value Opportunities and Threadneedle UK Mid 250 all returning more than 14 per cent this year, compared to 5.87 per cent from the sector average.
