The Legg Mason IF Japan Equity fund was by far the best performing fund for UK investors last year, according to FE Analytics, although significant gains have also been made by portfolios focusing on areas such as UK smaller companies and Europe.
As we’ve mentioned plenty of times over recent weeks, 2015 gave investors a rough ride with issues such as the UK general election, the Greek financial crisis, European quantitative easing, a slowing China, plunging commodity prices and an interest rate rise in the US tugging sentiment back and forth over the year.
While the UK’s FTSE All Share has eked out a 0.98 per cent total return over the past 12 months, this is well below the 4.87 per cent gain in the MSCI World index – although UK mid-caps had another strong year with an 11.17 per cent rise.
Emerging markets continued to lag the developed world, on the whole, with the MSCI Emerging Markets index falling 9.99 per cent. The S&P 500 rose 6.58 per cent, Europe was up 4.62 per cent and the Nikkei 225 tops the table with a 14.27 per cent surge.
It’s from the latter market – which has benefited from the Abenomics reform programme and lower starting valuations – where the year’s best performing fund comes: Hideo Shiozumi’s £458.9m Legg Mason IF Japan Equity fund, which made a 49.35 per cent total return, in sterling terms, over the past 12 months.
Source: FE Analytics
The gains add the fund’s recent strong run. Our data shows it is currently third highest returning member of the entire Investment Association universe over three and five years – it’s made 232.82 per cent over five years – being beaten only by AXA Framlington Biotech and Candriam Equities L Biotechnology.
However, it must be noted that Shiozumi prefer to invest in Japanese mid and small-cap stocks, which heightens the fund’s risk profile.
Over 10 years, its annualised volatility has been close to 26 per cent while its maximum drawdown of 78.79 per cent illustrates that the fund can fall hard in difficult markets just as it tends to soar when Japanese equities are on the up. Over 10 years, the fund is only just in positive territory.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
In his most recent update, Shiozumi said: “The manager believes the fund is well positioned to benefit from ‘the new three arrows’ of Abenomics, as aggressive measures are taken to raise wages further, increase consumption and promote employment.”
“Looking ahead, the manager will continue to focus on potential growth companies of the ‘New Japan’ with three major themes: consumer spending related, medical and healthcare, and those which are finding growth opportunities in the ageing society.”
As the table above shows, two other funds focusing on Japan have made it into the top 10 best performers of 2015: Baillie Gifford Japanese Smaller Companies and JPM Japan. Also appearing in the top 25 highest returners are Lindsell Train Japanese Equity, Allianz Japan Equity, AXA Framlington Japan and Jupiter Japan Income.
Of course, Japan remains a relatively overlooked market for UK investors. However, Europe – which was the other market tipped as a big value play for 2015 – is more common in portfolios and also had a decent year.
Half of the year’s 10 top performers focus on European equities and three of these reside in the IA European Smaller Companies sector.
A common theme in all of 2015’s highest returning funds is the fact they tend to invest further down the market cap spectrum and even one of the IA Europe ex UK funds on the list of best performers – Marlborough European Multi-Cap – has the bulk of assets in small and micro-cap stocks.
An exception, however, is the best performing Europe fund and the Investment Association universe’s third highest returner of 2015. Rory Powe’s £295.2m Man GLG Continental European Growth fund made a 30.90 per cent total return yet has around 45 per of its portfolio in large and mega-caps.
Powe only took over the fund in October 2014. He hadn’t run retail money for more than a decade, having stepped down as head of European equities at Invesco Perpetual in March 2001 to start his own hedge fund business, but has outperformed significantly since taking over the portfolio.
Performance of fund vs sector and index under Powe
Source: FE Analytics
Despite the lacklustre performance of the FTSE All Share over the past year, some UK funds have actually had a decent run.
Two IA UK Smaller Companies members have made it onto the top 10 list: MFM Techinvest Special Situations and Standard Life Investments UK Smaller Companies.
MFM Techinvest Special Situations could well be off the radar for many investors, as it has assets under management of just £8.9m, but it was the second highest returner of 2015.
The fund, which has been managed by Conor McCarthy and Darren Freemantle since launch in 2005, now sits at the top quartile of its sector over one, three and five years with a 112.06 per cent return over the latter period.
A more familiar smaller companies offering is Harry Nimmo’s £1.3bn Standard Life Investments UK Smaller Companies fund, which occupies sixth place with a 28.16 per cent gain.
This came after a difficult 2014, after the fund made a fourth quartile loss of 8.54 per cent on the back of a market pull-back from small-caps and heavy selling in the FTSE 250, where the portfolio was overweight.
However, Nimmo’s bias towards the UK consumer paid off last year with holdings such as bakery Greggs, sausage maker Cranswick and storage firm Big Yellow performing strongly.
Performance of fund vs sector and index in 2015
Source: FE Analytics
While these are the only two UK funds appearing in 2015’s top 10, a number of others can be found in the top 30 – including Premier ConBrio Sanford Deland UK Buffettology, PFS Chelverton UK Equity Growth, Franklin UK Smaller Companies, Old Mutual UK Mid Cap and CF Miton UK Value Opportunities.
