It is hard to imagine today given the growing optimism surrounding both investors and economists, but there was a time not long after the collapse of Lehmans that many people feared the financial system was on the brink of total collapse. One well-known fund manager who I recently spoke to told me that a couple of days after the crash – five years ago to the day, in other words – he sent one of his analysts to go outside to see whether queues were starting to form for the cash machines around Bank station.
"I told them to call me as soon as the queue went round the corner," he said. "They thought I was joking, but I wasn’t."
Between 15 September and 15 October 2008, the S&P 500, FTSE 100, DJ Euro Stoxx, Nikkei 225, MSCI AC World and MSCI Emerging Markets indices all fell between 15 and 25 per cent.
The only problem was, that wasn’t the end of it. While there were a number of peaks and troughs along the way, by the beginning of March 2009 all of the major indices with the exception of the Nikkei were down more than 20 per cent, with the FTSE and European indices down more than 30 per cent.
"The hardest time was at the beginning of 2009," said the manager. "All of the data was saying that we’d turned the corner, but stocks still kept falling. That was really tough."
Fast forward a few years and the picture is much, much rosier. Indeed, even when including the immediate effects of the Lehmans crash, investors have been rewarded for holding on to their money through the toughest of times.
The eurozone crisis and Fukushima disaster were just two of a number of subsequent stumbling blocks for markets, but since the lows of March 2009, indices have been on a general upward trend, helped in no small part by the effects of central banks’ vast quantitative easing programmes.
Funds
According to FE data, if you had invested in one of the 2,221 open-ended funds in the IMA unit trust and OEIC universe with a long enough track record on the eve of the Lehmans crash, 98.3 per cent of them – or 2,183 – would have made you money by now.
Moreover, 96.5 per cent of the 2,221 would have given you a better return than the Bank of England base rate, and 93 per cent would have beaten the corrosive impact of inflation.
Not including the two money market sectors, every IMA sector has beaten cash over the period, and only IMA Property has failed to beat inflation.
The best-performing sectors have generally been those with a small cap focus. IMA Japanese Smaller Companies is the runaway winner, with returns of just under 100 per cent. IMA UK Smaller Companies, North American Smaller Companies and European Smaller Companies weren’t far behind, with IMA Technology & Telecoms the odd one out in the top-five.
Five best-performing sectors since Lehmans crash
| Name | Return (%) |
|---|---|
| IMA Japanese Smaller Companies | 97.29 |
| IMA UK Smaller Companies | 93.83 |
| IMA Technology & Telecoms | 93.02 |
| IMA North American Smaller Companies | 89.9 |
| IMA European Smaller Companies | 76.42 |
| UK Consumer Price Index | 14.6 |
| Bank Of England Base Rate | 3.59 |
Source: FE Analytics
On a fund-specific basis, man of the moment Alex Wright wins out. The FE Alpha Manager’s Fidelity UK Smaller Companies fund has returned a remarkable 244.5 per cent over the period, smashing the performance of its sector and benchmark.
Wright, who is set to take over from Sanjeev Shah as manager of the £2.84bn Fidelity Special Situations fund early next year, recovered from a fall of more than 30 per cent in late 2008 to deliver this huge return to investors.
Performance of fund vs sector and index since 15 Sep 2008
Source: FE Analytics
Fidelity UK Smaller Companies is the only fund that has returned more than 200 per cent – or to put it another way, tripled investors’ money.
As a number of high-profile fund managers pointed out in a recent FE Trustnet interview, the strong performance of funds such as Wright’s shows the importance of not panicking when markets take a turn for the worse.
"The main lesson I learnt from Lehmans is that, however bad things are, life carries on and people muddle through," said Jeremy Tigue, manager of the F&C Investment Trust.
"Anyone who was brave enough to buy shares that week had a grim six months but has done very well over five years."
Some of the other top performing open-ended funds over the period include FE Alpha Manager John McClure’s Unicorn UK Income fund, Legg Mason Japan Equity, GAM Star China Equity, Marlborough UK Micro Cap Growth and Julie Dean’s Cazenove UK Opportunities fund, which have all delivered well over 150 per cent to investors.
Ten best-performing funds since Lehmans crash
| Name | Return (%) |
|---|---|
| Fidelity - UK Smaller Companies |
244.5 |
| Unicorn - UK Income |
189.29 |
| Legg Mason - Japan Equity | 183.02 |
| GAM - Star China Equity | 178.67 |
| Cazenove - UK Smaller Companies | 178.5 |
| Stan Life Inv - UK Equity Unconstrained | 171.56 |
| Marlborough - UK Micro Cap Growth | 167.43 |
| MFM - Slater Growth | 166.62 |
| Cazenove - UK Opportunities | 160.61 |
| Aberdeen Global - Asian Smaller Companies | 154.77 |
Source: FE Analytics
In one of the most surprising statistics to come out of this study, an impressive 94 funds have more than doubled investors’ money since the Lehmans crash, representing 4.2 per cent of the entire universe.
On a risk-adjusted basis, which FE Trustnet tends to measure by looking at the Sharpe ratio, the picture is a little different, with a number of bond funds making it into the top-10.
The Sharpe ratio calculates a fund's return relative to a notional risk-free investment – in this case, cash. The difference in returns is then divided by the fund's volatility.
While there are growing concerns about fixed interest, bond funds have weathered the various crises of the last five years or so better than their equity rivals, and tend to have a much lower volatility.
This is why the Henderson Credit Alpha fund tops the risk/adjusted return standings since the Lehmans crash, even though it has only returned 54.6 per cent – slightly less than the MSCI AC World index. It has an annualised volatility of 3.1 per cent over the period, compared with the index’s 10.24 per cent.
The fund, which sits in the IMA Targeted Absolute Return sector, has a Sharpe ratio of 1.89.
Performance of fund, sector and index since Lehmans crash
Source: FE Analytics
Other funds that score highly include Jupiter Strategic Bond and L&G Dynamic Bond. Wright’s Fidelity UK Smaller Companies fund and McClure’s Unicorn UK Income fund still make it into the top-10, in spite of their much higher volatility scores.
FE Trustnet has conducted a number of studies looking at funds that have performed the best on a relative basis since the Lehmans crash.
We will look at the investment trusts that have been the biggest winners since Lehmans in a separate article later this week.
Fund houses
As FE Trustnet reported in a recent in-depth study, Invesco Perpetual has come out of the financial crisis better than all of its rivals, with the highest number of funds registering top-quartile performance over five years.
While the time-frame in question has moved slightly, they are still runaway winners, with 20 – more than half – of its 38 funds with a long enough track record achieving top-quartile performance in their sector since 15 September 2008. All but six of the funds have beaten their sector average over the period. Among the highest profile performers are Neil Woodford’s two Invesco Perpetual income funds, and Paul Causer and Paul Read’s various fixed interest portfolios. Unsurprisingly, these are among a number of Invesco Perpetual funds to attract hundreds of millions of pounds of investors’ money in recent years.
A recent piece of research from Rostrum complements these findings: an independent survey of 100 financial advisers found that the fund brand considered to have gained the most in the past five years is Invesco Perpetual, which gained 26 per cent of this vote. The firm’s stability and performance were seen as the two biggest reasons for this success.
In second place was Jupiter, which was picked by 11 per cent of respondents.
When asked to pick from all the possible funds they could recommend to a client, Invesco Perpetual Distribution, which is co-managed by Causer, Read and Woodford (pictured), came out on top. The £2.5bn fund is a top-quartile performer in its IMA Mixed Investment 20%-60% Shares sector over one, three and five years. It was launched in 2004 and so does not yet have a 10-year track record.
FE Trustnet has been given the unique chance to meet a number of Invesco Perpetual’s high-profile fund managers face-to-face in the coming week, including the likes of Mark Barnett, Paul Causer, Martin Walker, David Millar, Paul Chesson, Nick Mustoe and Stephanie Butcher. If you have any questions for these managers, please leave a message below or email us at editorial@financialexpress.net