Across the course of 2016, FE Trustnet’s journalists have written on countless occasions how the year was shaping up to be a difficult one for investors to navigate and this sentiment seems to hold true when you look at how our fund picks for the year have performed.
The past year has thrown up myriad challenges for investors. It started with widespread concerns over the health of the Chinese economy and low commodity prices, was marked by political shocks in the form of the Brexit result and the election of Donald Trump as US president, and – despite all that – recently saw the FTSE 100 set a new record closing high.
Year-to-date, the FTSE All Share has made a 16.16 per cent total return while the Barclays Sterling Gilts index has gained 9.96 per cent. While the average bond manager has performed slightly better than the index, FE Analytics shows the IA UK All Companies sector is lagging the equity index by over 5 percentage points.
Performance of sectors and indices over 2016
Source: FE Analytics
So, did the fund picks from our editorial team manage to performer better than the average active manager?
One year ago the FE Trustnet pulled together its fund picks for 2016 and decided on the following choices: Gary Jackson – Henderson UK Absolute Return; Lauren Mason – Unicorn Mastertrust; Anthony Luzio – CF Woodford Equity Income; Alex Paget – Fidelity UK Smaller Companies; and Daniel Lanyon – MFM Junior Oils Trust.
As the chart on the following page will show, only two of these five funds have made a higher return than the FTSE All Share index over the year so far.
It’s our former senior reporter Daniel Lanyon who comes out on top after MFM Junior Oils Trust – a small-cap oil fund – made a total return of more than 45 per cent. This is a lower return than its FTSE 350 Oil & Gas benchmark, however.
Writing last year, Lanyon said: “I have little insight into where the oil price is going be in 2016 but I expect the current oil oversupply to inevitably diminish at some point in the not-too-distant future. That is why I am buying this high octane small-cap focused fund, which should there be a recovery even to a modest $60-70 range per barrel is likely see a decent return – if history is anything to go by.
“Of course it is more than likely that this will not happen immediately and so I will be drip-feeding in on a monthly basis rather than a lump sum and I see this as a small position acting as a kicker in a well-diversified portfolio.”
As the below chart shows, Lanyon’s ‘kicker’ has paid off this year. From its lowest at the end of 2015, the price of oil has gradually climbed – aided by the recent landmark decision between the Organisation of the Petroleum Exporting Countries (OPEC) and several non-OPEC members to reduce their output; it now stands at just under $55 a barrel.
Performance of funds and indices over 2016
Source: FE Analytics
In second place we have Lauren Mason (who at the time was the newest member of the team) and the Unicorn Mastertrust. Mason opted for this fund – which invests in a portfolio of investment trusts – as she wanted to “play it safe”.
Managed by Peter Walls, the fund has a contrarian investment approach that looks for pricing anomalies within the investment companies sector. It has top 10 exposure to areas such as resources (through BlackRock World Mining Trust) and Asian equities (through Fidelity Asian Values), which have had a strong 2016.
Alex Paget, our then news editor, went for Alex Wright’s Fidelity UK Smaller Companies but stressed that this was not a short-term bet and a fund he thought would perform well if the value style started to outperform growth.
“Of course, I’m planning on holding it for a very long time indeed because I believe in the manager but I also think Fidelity UK Smaller Companies has the ability to deliver good returns next year and that is because Wright is a value/contrarian investor,” Paget said.
The Brexit result did throw some challenges towards UK smaller companies, which suffered because of their exposure to the domestic economy. While the fund is third-placed when it comes to FE Trustnet’s fund picks, the approach used by FE Alpha Manager Wright has resulted in better returns than the average small-cap fund over the year.
Trustnet Magazine editor Anthony Luzio went for Neil Woodford’s CF Woodford Equity Income fund and came in fourth place after making 2.88 per cent. Luzio usually goes for racier funds in his annual picks but went for Woodford as he wanted a safer bet.
However, the fund has fallen into the IA UK Equity Income sector’s bottom quartile this year – partly down to the underperformance of defensive stalwarts such as tobacco and healthcare, which have lagged as investors turn their attention to value stocks as part of a ‘reflation’ trade.
And in last place is myself – editor Gary Jackson – with Ben Wallace and Luke Newman’s Henderson UK Absolute Return fund. In my defence, I went into the year with a very negative outlook and was more concerned with protecting on the downside than making money.
“While I don’t expect this fund to be the highest returner during 2016, given my concerns about the future direction of markets I’ll be judging the success of my portfolio more on downside protection rather pure returns for the foreseeable future,” I wrote at the time.
However, it’s debateable whether I won on those goals. While the fund’s volatility of 3.31 per cent has been much lower than the FTSE All Share’s, its maximum drawdown of 1.75 per cent over the past year has been slightly higher than the index’s 1.62 per cent.
In an article next week, the FE Trustnet team will reveal their fund picks for 2017