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How are advisers’ favourite funds performing in a choppy 2016?

30 August 2016

FE Trustnet looks through the Adviser Fund Index portfolios to find out which of their members have made the highest returns over the year-to-date.

By Gary Jackson,

Editor, FE Trustnet

Neptune Russia & Greater Russia, Legg Mason IF Japan Equity and First State Global Listed Infrastructure are some of the FE AFI members that have made the highest total returns over the challenging market conditions of 2016, research by FE Trustnet shows.

The year-to-date has been a difficult one for investors to navigate, with issues such as weak economic growth in China, the UK’s vote to quit the European Union and the looming US presidential election adding to nervousness.

Despite these headwinds, however, many assets have experienced a sharp rise in prices in the opening eight months of 2016 – especially for the UK investor, where a weak sterling has boosted returns made overseas. While the FTSE All Share has managed an 11.45 per cent total return, foreign stock markets and gilts have posted stronger gains while gold is up more than 40 per cent.

Performance of indices over 2016

 

Source: FE Analytics

But this backdrop has been a difficult one for active fund managers to outperform against, as we’ve highlighted on a number of occasions in the recent past.

FE Analytics shows that the average IA UK All Companies fund, for example, has lagged the FTSE All Share by close to 5 percentage points with a 6.52 per cent total return. Meanwhile, the 15.14 per cent made by the average IA Global fund is some 3.61 percentage points behind the MSCI World index.

The FE Adviser Fund Index (AFI) portfolios – which are made up of the recommended portfolios of a panel of leading UK financial advisers – have also found this backdrop a difficult one although there are a number of funds within them that have produced some strong year-to-date returns.

In the following article, we look at the best performing funds in the FE AFI Aggressive, Balanced and Cautious portfolios over 2016’s choppy opening months.


As the table below shows, Robin Geffen’s Neptune Russia & Greater Russia fund leads the pack in the FE AFI Aggressive portfolio after making close to 37 per cent this year. It has underperformed it MSCI Russia Large Cap benchmark, however, which is up 42.66 per cent.

Russian equities have had a relatively robust 2016 after the oil price rebounded strongly this year. The country had suffered in recent years as the plunge in the oil price hammered its economy and turned investors off its companies, as the fortunes of many are linked to the oil price.

 

Source: FE Analytics

Over 2016 so far, the FE AFI Aggressive portfolio has made a 9.75 per cent total return – outpacing the 9.33 per cent return from the IA Flexible Investment sector but lagging the FTSE WMA Stock Market Growth index’s 13.87 per cent rise.

However, 65 of its 114 members have made double-digit returns. BlackRock Natural Resources Growth & Income, which is in second place, is another fund that has benefitted from rallying commodity prices while Lazard Emerging Markets has had a strong year thanks to resurging investor sentiment towards the previously unloved developing world.

Some members have incurred strong losses though. At the bottom of the portfolio’s performance table is M&G Property, which is down 12.54 per cent. The Brexit-induced problems for property funds also mean that Henderson UK Property PAIF and Kames Property Income are in negative territory, as are Franklin UK Smaller Companies and Artemis UK Select.


In the FE AFI Balanced portfolio the best performer this year has been Hideo Shiozumi’s Legg Mason IF Japan Equity fund, which is up 33.22 per cent. The fund, which has doubled the return of its peer group and benchmark in 2016, is currently the best performing fund of the IA Japan sector over one, three and five years as well as 2016 so far.

The fund is also the third best performer in the entire Investment Association universe over the past five years. However, investors would be wise to note that it can be a very volatile fund (owing to Shiozumi’s preference for companies towards the bottom end of the market cap spectrum) and it would not be remiss to describe the 78.79 per cent maximum drawdown it has suffered in the past 15 years as ‘eye-watering’.

 

Source: FE Analytics

As a whole, the FE AFI Balanced portfolio has made 6.54 per cent over 2016 so far. As a point of comparison, the average IA Mixed Investment 40%-85% Shares fund is up 9.33 per cent while the FTSE WMA Stock Market Balanced index has risen 13.48 per cent. Still, some 57 of the index’s 118 members have made double-digit returns over the year-to-date.

Like with the aggressive portfolio, the rally in emerging markets is clear to see with Newton Asian Income, Schroder QEP Global Emerging Markets, Stewart Investors Global Emerging Markets Sustainability and Hermes Asia ex Japan Equity being some of the best performers.

M&G Property Portfolio is also at the bottom of AFI Balanced and is joined by funds such as Standard Life Investments UK Real Estate, Henderson UK Property PAIF, Kames Property Income and Franklin UK Smaller Companies. Again, the impact of Brexit on property and UK smaller companies funds is clear to see.


The fund that tops the FE AFI Cautious portfolio – Schroder QEP Global Emerging Markets – is only available to institutional investors but just one basis point behind is First State Global Listed Infrastructure, which is up 30.74 per cent.

Listed infrastructure stocks – or companies that derive their earnings from areas like utilities, ports, airports, railways and toll roads – have been much in demand over recent years as their stable earnings, long-term structural-growth drivers and high-dividend payments meet investors’ need for income and defensiveness.

 

Source: FE Analytics

The FE AFI Cautious portfolio has also underperformed both the IA Mixed Investment 20%-60% sector and the FTSE WMA Stock Market Income index after making 5.26 per cent in the year to date. But 52 of its 115 members have achieved a return of more than 10 per cent.

The strong performance of gilts – which were boosted by the recent Bank of England moves to drop the base rate to 0.25 per cent and restart quantitative easing – is reflected in L&G All Stocks Index Linked Gilt Index Trust being the portfolio’s third highest returner. Meanwhile, Asian equity funds are well represented and the ongoing search for income is shown through the likes of M&G Global Dividend and Newton Global Income.

Again we mostly have property funds at the bottom of the portfolio’s return rankings: M&G Property Portfolio, Standard Life Investments UK Real Estate, Henderson UK Property PAIF, Standard Life Investments UK Equity Unconstrained, Kames Property Income and Threadneedle UK Property AIF.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.