Gold, emerging market equities and natural resources funds have topped the list of the best-performing investment vehicles over the first half of this year, according to data from FE Analytics.
Indices have certainly been volatile over the last six months, with China’s growth slowdown, the collapse in commodity prices and uncertainty surrounding impending rate hikes in the US casting a shadow over the first few weeks of 2016.
Following a mass sell-off in the middle of February though, confidence seemed to reappear following dovish statements from the Fed, a slowdown in the strengthening dollar and a gradual increase in oil price.
Then, following the announcement of a ‘Leave’ result from the UK’s EU referendum, global markets went into another period of turbulence. For sterling investors, however, the fall in the pound translated into higher returns from global stocks.
Performance of indices in 2016
Source: FE Analytics
In such turbulent market conditions and given the volatility experienced last year, it is perhaps no surprise that gold funds seem to have fared the best so far to the end of June 2016.
In first place overall for performance from the entire Investment Association universe is Angelos Damaskos’ MFM Junior Gold fund, which has returned 165.64 per cent since the start of the year.
The fund has an FE Risk Score of 290, which suggests it has been almost three times as risky as the FTSE 100 index over recent years, and it has seen twice as volatile as the MSCI World index (the fund resides in the IA Specialist sector so cannot be compared to its peer group composite) over the manager’s nine-year tenure.
The one crown-rated fund is £11.6m in size and invests predominantly in small and mid-cap companies that specialise in developing and identifying gold.
Damaskos argues that this year’s environment has strongly supported the case for holding gold as a value store, given that quantitative easing could stimulate inflation and that there is a strong demand for gold ETFs currently.
Performance of fund vs benchmark and index in Q1 and Q2 2016
Source: FE Analytics
Other gold funds that have benefitted from this backdrop and have therefore been some of the top-performers during the first half of this year include the five crown-rated WAY Charteris Gold & Precious Metals Elite, George Cheveley and Hanre Rossouw’s Investec Global Gold, Smith & Williamson Global Gold & Resources and BlackRock Gold & General.
In fact, these funds are the only open-ended investment vehicles within the Investment association to return more than 100 per cent over the first half of this year.
Table of top performing IA funds over Q1 and Q2 2016
Source: FE Analytics
Aside from gold funds, the next highest-performing fund during Q1 and Q2 this year was HSBC GIF Brazil Equity, which has one FE crown and an FE Risk Score of 240. It is run by Natalia Kerkis and Lee Ray and resides in the IA Specialist sector. During the first half of the year, it has returned 62.33 per cent.
However, the SICAV – which is able to invest across the cap spectrum within the volatile region – is unavailable on most major investment platforms.
Brazilian equities have done well generally this year though, bolstered by the boost in oil prices, an increase in investor sentiment towards emerging markets and, more recently, the impeachment of president Dilma Rousseff.
Hot on the heels of HSBC GIF Brazil Equity for their total returns this year include JPM Brazil Equity – which returned 52.21 per cent, BNY Mellon Brazil Equity – which returned 48.43 per cent and, on a broader scale, Scottish Widows Latin American and Aberdeen Latin American Equity, which returned 47.45 and 45.78 percentage points respectively.
Performance of funds vs index in Q1 and Q2 2016
Source: FE Analytics
In amidst the LatAm and gold funds, there were two standout performers in 2016 during the first half of this year. One was Invesco Perpetual Japanese Smaller Companies, which is headed up by Osamu Tokuno and is £52.7m in size.
The fund, which has one FE crown, holds a relatively concentrated portfolio of 56 stocks and is in the top quartile for its total returns versus its sector average over one, three and five years as well as over the last one, three and six months. During Q1 and Q2 2016, it returned 50.92 per cent.
However, it is in the bottom quartile for its annualised volatility over these same time frames, suggesting it may not be best-suited to the cautious investor.
The second top-performing fund to break the mould in terms of its sector is BlackRock GF Mining, which is perhaps unsurprising given the increase in commodity prices seen so far this year.
It is managed by Evy Hambro and Olivia Markham and, during the first half of this year, it returned 55.51 per cent.
The fund holds 56 stocks including the likes of BHP Billiton, Rio Tinto and Randgold Resources, with its top 10 largest holding accounting more than half of the fund’s portfolio.
While BlackRock GF Mining is the runaway top-performer within the resources area of the market, other funds that deserve honourable mentions for their returns to the end of June include First State Global Resources, JPM Global Natural Resources and CF CanLife Global Resource – all of which have returned in excess of 40 per cent during Q1 and Q2 this year.
The pattern of mining, emerging market and gold funds delivering strong returns continues consistently throughout the list for 20 places (with the exception of Invesco Perpetual Japanese Smaller Companies).
Over in the UK equities space though, the top-performing fund was IFSL Trade Union Unit Trust, which returned 8.69 per cent. However, given the fact that it is unavailable on most investment platforms, it may be under most investors’ radars.
Just a few basis points behind is Standard Life Investments UK Equity Recovery, which has returned 8.55 per cent.
Performance of fund vs sector and benchmark in Q1 and Q2 2016
Source: FE Analytics
The £41m fund has been run by David Cumming since 2009 and predominantly invests in large and mid-cap companies that are undergoing a positive transitional period – examples of its largest holdings include Premier Foods, Barclays, Anglo American and Standard Chartered.
As to be expected with a recovery fund, it is in the bottom quartile versus its peer group for its annualised volatility over the last six months as well as over the last one, three and five years.
Other UK funds that have fared particularly well during the first half of this year include Aberdeen Responsible UK Equity, Schroder Recovery, Evenlode Income and UBS UK Equity Income.
Table of top-performing UK funds in Q1 and Q2 2016
Source: FE Analytics
Over in the global sectors, the aforementioned First State Global Resources has delivered the highest return during the first half of this year at 42.89 per cent. The global fund to achieve the highest return without having a resources specialisation though is another First State fund – FE Alpha Manager Peter Meany’s First State Global Listed Infrastructure.
The four crown-rated fund is £1.5bn in size and holds a concentrated portfolio of 41 stocks, including urban toll road developer Transurban Group, US electric power holding company Duke Energy and the Pacific Gas and Electric Company (PG&E).
While the fund has achieved a top-quartile maximum drawdown (which measures the most potential money lost if bought and sold at the worst times) over the last six months, it is in the bottom quartile for its annualised volatility over the same time frame.
Over in the fixed income space, Pimco GIS Euro Ultra Long Duration was the top-performing fund during Q1 and Q2 of this year with a total return of 39.67 per cent. However, the €57m fund is domiciled in Ireland and is unavailable on most investment platforms.
The top-performing easily accessible fixed income fund was Pictet Latin American Local Currency Debt, which is headed up by Mary Therese Barton and Simon Lue-Fong and is £161m in size.
The fund must be at least two-thirds invested in fixed income holdings that are denominated in the local currency of emerging Latin American markets – its currency weightings are currently Brazilian real at 42.8 per cent, Mexican peso at 36 per cent, Colombian peso at 11.17 per cent and a 5.95 per cent weighting in US dollar.
While almost half of its holdings are ‘A’ rated, it also holds more than 10 per cent in unrated fixed income, 11.34 per cent in ‘BBB’ rated bonds and 32.75 per cent in ‘BB’ bonds.
Other fixed income funds that deserve an mention for their performances during the first half of the year include FE Alpha Manager Claudia Calich’s M&G Global Government Bond, BlackRock Overseas Government Bond Tracker and Aberdeen World Government Bond.
