Funds managed by Ballie Gifford and strategies that focus on areas like sustainability, financials and smaller companies have beaten their benchmarks by the widest margins in 2020, research by Trustnet has found.
While most backward-looking performance stories look at funds’ total returns in comparison with their average peer, here we have focused on how funds in the Investment Association universe have performed relative to their named benchmark.
On a sector level, IA Technology & Telecommunications funds come out best. The average fund in this peer group has outperformed their benchmark by 12.8 percentage points in 2020, beating an already surging market for tech stocks.
The IA Asia Pacific Including Japan and IA China/Greater China sectors follow as their average member has beaten its named benchmark by 11.4 and 7.85 percentage points respectively.
Smaller companies funds have also done well, with the average fund in the IA North American Smaller Companies, IA Japanese Smaller Companies, IA UK Smaller Companies and IA European Smaller Companies ahead of the index by 5 percentage points or more.
Funds in most equity sectors that have tended to perform better than their benchmark over the year, including popular peer groups like IA Global, IA North America and IA UK All Companies (although this last one outperformed by just 0.1 percentage point on average).
The worst relative performance has come from the IA Global Equity Income sector, where the average fund’s total return is 5.3 percentage points below its benchmark, followed by IA UK Equity Income (4 percentage points under).
This reflects the widespread dividend cuts that followed in the wake of the coronavirus crisis.
However, most readers will probably be interested in the individual funds that have managed to power ahead of their benchmarks in the challenging conditions of 2020. The 50 with the highest levels of outperformance can be seen in the table below.
Source: FinXL. Total return in sterling between 1 Jan and 6 Oct 2020
The list is topped by the £5.3bn Baillie Gifford American fund, which has beaten the S&P 500 by more than 85 percentage points over 2020 to-date. A total return of 93.15 per cent makes it one of the year’s best performers in the Investment Association universe.
Baillie Gifford American is currently the IA North America sector’s highest returner over one, three, five years. Over 10 years, it has made 789.24 per cent, which was the sector’s second-highest return.
Tom Slater and his team run a concentrated portfolio of between 30 and 50 stocks, with top holdings including the likes of Tesla, Amazon and Zoom Video Communications – all of which have performed strongly over 2020’s pandemic.
In an update in June, the fund’s managers said: “The economic toll of the coronavirus pandemic will bring hardship to many businesses and people. At the same time, it might cause step changes in our behaviours that see companies achieve many years of expected growth in a matter of months. It may even drive forward innovation and bring new businesses into our investment universe.
“Some of these shifts will be temporary but others will inevitably persist. Through our research, we aim to identify which of these new and disruptive businesses can rise to the challenge and play a meaningful role in the world we return to.”
Performance of fund vs sector and index over 2020
Source: FE Analytics
Like Baillie Gifford American, the other strategies run by Baillie Gifford focus on growth stocks – especially disruptors in the tech space. Companies of this type have emerged as ‘coronavirus winners’ and this is reflected in the number of Baillie Gifford funds that can be found in the above list of outperformers.
Baillie Gifford Long Term Global Growth Investment, Baillie Gifford Positive Change, Baillie Gifford Global Stewardship, Baillie Gifford European and Baillie Gifford British Smaller Companies are all outpacing their respective benchmarks by a significant margin this year.
Morgan Stanley Investment Management’s US Growth and US Advantage funds are also among those strongly outperforming their benchmarks in 2020.
In addition, they are among the five best performers of the IA North America sector over one, three, five and 10 years. Morg Stnly US Growth has made 803.51 per cent the past decade, which is the peer group’s highest gain.
Both funds also use a long-term quality-growth approach and have high allocations to tech stocks, which led the market rally that followed the initial coronavirus sell-off. ‘Coronavirus winners’ found in the portfolios include Shopify, Amazon and Spotify.
Matthews China Small Companies and Aubrey Global Conviction are the only funds in the top 10 outperformers that are not managed by Baillie Gifford or Morgan Stanley Investment Management.
Of course, not every fund has been able to beat its benchmark across the ups and down of the year so far. Below are the 20 funds with the worst underperformance against their named benchmark.
Source: FinXL. Total return in sterling between 1 Jan and 6 Oct 2020
JGF-Jupiter Global Ecology Growth tops the list after underperforming the FTSE ET100 index by close to 45 percentage points in 2020 so far. Strategies with a focus on environmental, social and governance (ESG) factors have tended to perform strongly this year, but this fund is up just 8.9 per cent.
LF Equity Income, which formerly managed by fallen star Neil Woodford, has lagged its FTSE All Share benchmark by a similar magnitude. The fund is currently being wound down and cash returned to unitholders after the collapse of Woodford’s investment empire.
One common theme on the above list is the underperformance of funds with a value approach, reflected in the presence of Vanguard US Fundamental Value, Ninety One Global Special Situations, Schroder Global Recovery and ASI UK Recovery Equity.
Value has continued to lag behind the growth style in 2020, as many of the stocks that held up in the coronavirus crisis are found in growth sectors like tech, healthcare and consumer discretionary.