Funds investing in gold equities and Japan have posted the highest gains over the turbulent year since the FTSE 100’s peak, according to FE Analytics, while smaller companies portfolios have had the strongest run when it comes to the UK.
The FTSE 100 reached an all-time intra-day high of 7,122.74 on 27 April before closing the session at a record 7,103.98. However, this came ahead of a severe correction that led some to declare the UK index to be in bear market territory and by 11 February 2016 it had fallen to a low of 5,537.
Performance of index since 27 April 2015
Source: FE Analytics
Numerous issues rocked the FTSE 100 – along with other stock markets around the world – including the slowdown in the Chinese economy, a devaluation of the renminbi, concerns over the timing of interest rate rises in the US and plunging commodity prices.
Recent weeks have seen somewhat of a rally in risk assets, however, as investors believe the Federal Reserve will now make fewer interest rate hikes than previously expected and the risk of a fresh recession hitting the US – the world’s largest economy – seems to have receded.
However, the index is still significantly down from its record.
On a sector level, smaller companies have been the place to be during the year since 27 April 2015. The IA Japanese Smaller Companies peer group has the highest average return at 7.28 per cent, followed by IA UK Smaller Companies with a 5.46 per cent gain and IA European Smaller Companies with a 3.24 per cent average rise.
Other than these, only five sectors – IA Property, IA Global Bonds, IA UK Gilts, IA Short Term Money Market and IA Money Market – are in positive territory, on average, over the 12 months in question.
The biggest sector loss came from IA China/Greater China, where the average fund has shed 22.09 per cent of its value after the country became the focus of most investors’ jitters. The average IA Global Emerging Markets fund is down 13.71 per cent while the loss in the IA Asia Pacific ex Japan sector stands at 11.80 per cent.
When it comes to individual funds, however, Hideo Shiozumi’s £662.1m Legg Mason IF Japan Equity fund is way out in front with a 61.47 per cent total return since 27 April 2015. The fund has had a strong run over recent years as the Abenomics stimulus plan buoyed investor sentiment towards Japan; a 288.16 per cent return means the fund has been also the best performer in the entire Investment Association universe over the past five years.
While the fund has made very high returns over the recent past, it must be noted that it has been the most volatile member of its sector over the past 15 years while its maximum drawdown – or the most an investor would have lost if they bought and sold at the worst possible times – is an eye-watering 78.79 per cent.
However, as you can see from the table below, only one other Japan fund – Baillie Gifford Japanese Smaller Companies – has made it onto the list of the 10 best performers. The bulk of it is taken up by gold equity funds.
Source: FE Analytics
While gold went through a difficult few years after the eurozone debt crisis pushed it record highs in 2011, the recent stock market turmoil has seen investors return to the yellow metal in search of a traditional safe haven. This has been to the benefit of gold miners, which had also suffered when the metal’s price was under pressure – FE Analytics shows the average gold equity fund in the above list is down more than 50 per cent over five years.
Outside of Japan and gold miners, the only other fund to hold a top 10 spot since the FTSE’s peak is MFM Techinvest Special Situations, which is a member of the IA UK Smaller Companies sector. The fund has a value approach to investing and used it to good effect in recent years, despite the style being out of favour; it is in the top quartile over one, three and five years.
However, a number of UK smaller cap-focused funds are just outside the top 10. Liontrust UK Smaller Companies is in 12th place with a 19.33 per cent total return since 27 April 2015, MI Chelverton UK Equity Growth is in 14th with a 19.08 per cent gain and Marlborough UK Micro Cap Growth is in 16th with a 17.14 per cent rise.
Looking just at the three main UK equity sectors shows just how returns have been skewed towards smaller companies, which have been less effected by global concerns and have less exposure to troubled areas like oil & gas and mining.
All but a handful of the 40 highest returning UK funds have a bias towards small-caps - even those from the IA UK All Companies and IA UK Equity Income sectors present in the top 40 tend to look outside of the FTSE 100 and have an overweight to smaller companies.
Flipping things on their head, clear patterns also emerge when we look at the worst performing portfolios since the FTSE’s peak. Given that many of the concerns to have rocked markets in the time since revolve around China’s slowing growth and falling commodity prices, it’s no surprise to see this well-reflected in the list of loss-making funds.
Source: FE Analytics
New Capital China Equity is down the most with a 35.63 per cent loss, which came after a 75.82 per cent gain over the previous 12-month period during the Chinese stock market’s surge. It is closer followed, however, by MFM Junior Oils Trust, although this fund has rallied hard in more recent months after signs of stabilisation in the oil price.
