Last year is unlikely to be remembered with much fondness by most investors, after stock markets reached new record highs in its early months only to enter a period of significant volatility and numerous sell-offs.
In April 2015, the FTSE 100 joined a number of other major indices in reaching its highest closing value when it ended 27 April’s session at 7,103.98. The start of 2015 was marked by a distinct ‘feel good factor’, driven by improving economic data and continued easy monetary policy from the world’s central banks.
However, concerns such as plunging stock markets in China, a surprise devaluation of the renminbi, fretting over the timing of the Federal Reserve’s first interest rate increase and falling commodity prices prompted declines in risk assets across the globe.
Performance of indices in 2015 in local currencies
Source: FE Analytics
Amid all this turmoil, however, fund managers were able to find some of their own ‘thank goodness’ moments, when things went in their favour. Ahead of the FE Alpha Manager Awards on 14 April, we caught up with some of the industry’s leading managers to find out what their best moments of 2015 were.
Chris Reid, manager of the Majedie UK Income fund, says that one thing is has learnt over his 16 years of analysing is that re-ratings can occur in all market environments and his £1.1bn fund benefitted from one such example in 2015.
“The insurer Amlin was a top 10 fund holding last year because management and employees were doing a fantastic job improving the business and yet the stock market just couldn’t stop mistrusting it,” he said.
“Eventually it got taken out by an overseas buyer and while we were gutted to see it go, the bid made our clients a lot of money and once again proved that investing in improving businesses does work over the long term.”
Other FE Alpha Managers we spoke to also highlighted individual stock successes as some of the best moments of 2015.
Christopher Metcalfe, manager of the £1.7bn Newton UK Income fund, picks the performance of transport operator National Express – which posted a 38.97 per cent total return last year – as his 2015 ‘thank goodness’ moment.
Performance of stock and index in 2015
Source: FE Analytics
“When markets were stressed you would look at that holding and think it had a good spread of businesses which are not particularly economically sensitive,” Metcalfe said.
“Additionally it has proven management, a decent free cash flow yield supporting a reasonable dividend yield, a sensible level of debt and a rating that is not too outlandish compared to many in today’s rarefied world.”
Julian Fosh, who co-manages the £1.7bn Liontrust Special Situations and £214.2m Liontrust UK Growth funds with Anthony Cross, goes for “Royal Dutch Shell's bid for BG Group after the latter's repeated profits warnings”.
Royal Dutch Shell – a top 10 holding in both of the above Liontrust funds – announced plans to buy BG Group in April last year at a 50 per cent premium to the then BG share price. The deal completed in February 2016 to create the world’s biggest liquefied natural gas business.
Over at Troy Asset Management, fund managers took comfort from the fact that conditions didn’t get any worse in 2015. Troy Trojan manager Sebastian Lyon says that “boring is under-rated” and goes for an example of a long-term holding that continued to deliver.
When asked for his ‘thank goodness’ moment, he said: “British American Tobacco delivering consistent returns – a reminder that investing is not all about growth.”
British American Tobacco is the second largest position in Lyon’s £2.8bn fund, after gold bullion. The tobacco firm’s preliminary results for 2015 were published with the header “excellent performance driven by market share growth” and revealed that adjusted diluted earnings per share, at constant translational rates of exchange, were up by 10.1 per cent.
Performance of stock and index in 2015
Source: FE Analytics
Neil Woodford, manager of the CF Woodford Equity Income and Woodford Patient Capital investment trust, counters that he doesn’t think in terms of individual moments or examples in his investment process.
“I don't think of the world that way. I think of the portfolio as a collective because that's exactly what it is. Whether markets are rising or falling, it's the overall strategy that counts,” he said. “And I want the funds to be judged over the long term, over which time their performance in a short-term market blip becomes irrelevant.”
Looking to the bond markets and M&G Optimal Income manager Richard Woolnough said: “As bond investors our ‘thank goodness’ moments usually come from credits we don’t own rather than those we do.”
“There were a number of those during the year, particularly in the high yield energy sector, which we have been largely avoiding despite the temptation to buy at distressed levels. We don’t have much conviction that the oil price is going to significantly rebound and defaults could really ramp up in that sector, so we’re happy to remain on the side lines for now.”
Anthony Smouha, who runs the £285.5m GAM Star Credit Opportunities fund, highlights a UK bank as holding that performed well for his portfolio last year.
“Our top corporate holding is in Lloyds Bank, which is extremely strong and helped us ride the volatility,” he said. “It is a good business model for the new conservative banking world. This resulted in good returns over the year.”
