While the challenging market conditions of 2018 left most funds in the Investment Association nursing losses, 2019 has got off to a much better start and several have already erased last year’s falls.
FE Analytics shows the average member of 31 of the Investment Association’s 37 fund sectors recorded a loss in 2018 after markets were rocked by headwinds such as tighter monetary policy, the US-China trade war, uncertainty over Brexit and slower global growth.
Because of these factors, the majority of funds ended 2018 in negative territory. Out of 3,764 funds in the Investment Association universe, only 422 – or 11.2 per cent – had a total return higher than zero at the year’s close.
Source: FE Analytics
However, markets rallied in January 2019 and every fund sector aside from IA Global Bonds made a positive return over the month. IA North American Smaller Companies led the way with an 8.28 per cent average total return, followed by IA Property Other (7.47 per cent), IA Technology & Telecommunications (6.53 per cent), IA China/Greater China (5.79 per cent) and IA European Smaller Companies (5.57 per cent).
Given this, FE Trustnet looked across the Investment Association universe to find out how many funds that suffered a loss of more than 5 per cent in 2018 had already rebounded back from this by the end of January. That said, past performance is no guide to future returns and one month is a very short time frame.
We discovered that just 40 funds of the 2,064 that were hit with a loss of this magnitude were able to recover from 2018 in the space of a single month. The full list of the 40 can be seen below.
AXA Framlington Biotech sits at the top, which is ranked in order of the total return made between 1 January 2018 and 31 January 2019.
The £464.1m fund, which resides in the IA Specialist sector, made a 6.42 per cent loss in 2018 but rallied by 12.87 per cent last month. This results in a total return of 5.63 per cent across the entire period.
At the end of 2018, AXA Framlington Biotech manager Linden Thomson used the market falls of last year to add to small- and mid-cap stocks that looked attractive. This part of the market cap spectrum went on to rally strongly in January.
Source: FE Analytics
“Against an uncertain political backdrop, the rapid pullback in biotech stock prices has created some attractive opportunities, particularly in small- and mid-cap biotech stocks that declined more than the index,” she said at the time.
“We see the potential for us to add selectively where macro concerns have caused a divergence between biotech stock prices and fundamental value. However, we maintain our long-established caution on the large-cap biotech companies until we see improving long-term growth prospects.”
T. Rowe Price Global Technology Equity jumped 10.71 per cent in January. The tech sector bore the brunt of the sell-off that hit markets in the fourth quarter of 2018 but was the strongest area in the opening month of this year as investor sentiment rebounded.
JPM Latin America Equity is the only other fund on the list to rise more than 10 per cent in January after a loss of more than 5 per cent in the previous year. Although Brazil had a strong 2018 thanks to the election of a pro-business president, the right-wing populist Jair Bolsonaro, this fund had lost 5.51 per cent.
There are four IA UK All Companies funds that made it onto the above list: Baillie Gifford UK Equity Alpha, Majedie UK Focus, Unicorn Outstanding British Companies and Aberdeen Responsible UK Equity.
Baillie Gifford UK Equity Alpha, which is managed by Gerard Callahan, is the UK equity fund that staged the biggest bounceback, as it is now 2.33 per cent up since the start of 2018 despite losing 5.16 per cent last year.
The £379.1m fund is a high conviction and concentrated strategy, looking for quality, wellmanaged companies with longterm growth prospect. Analysts at Square Mile pointed out that investors need to keep this in mind: “The fund is managed with a longterm mindset, with the team looking to identify what a company's earnings may be in three-to-five years rather than focusing on the next quarter's numbers. As such, this fund should only be held by those with a similar investment time frame.”
Source: FE Analytics
We also repeated the research with the Association of Investment Companies universe, where 226 investment trusts made a loss of greater than 5 per cent last year. Of these, nine were able to rebound in January.
As the above table shows, BlackRock Throgmorton Trust was the most successful. Its 12.13 per cent total return last month more than made up for the 6.62 per cent loss in 2018, leaving investors 4.71 per cent ahead since the start of the period.
The £319.6m trust focuses on UK smaller companies, which rallied during the risk-on environment at the start of 2019.