Few could have anticipated the Covid-19 pandemic that took hold last year nor its impact on the global economy and the reaction of markets. As such, the reasoning behind the Trustnet team’s fund picks for 2020 – based on assumptions made at the end of 2019 – bear little relevance to today’s investment backdrop.
Nevertheless, in a year where markets experienced the worst contraction on record followed by a steep recovery fuelled by extraordinary monetary and fiscal stimulus, most of the team’s picks fared well.
Below, we take a look at the funds in more detail and consider how they performed during 2020.
Performance of Trustnet team fund picks in 2020
Source: FE Analytics
Despite the challenging investment backdrop, three of the four fund picks made positive returns in 2020, as the above chart shows.
And modest Trustnet Magazine editor Anthony Luzio saw his choice – Miton UK MicroCap Trust – emerge as the best performer after making a total return of 33.32 per cent.
The £92.9m closed-ended fund – overseen by veteran small-cap investor Gervais Williams and colleague Martin Turner – marginally outperformed two of the other Trustnet fund picks.
However, the investment trust stood out among its peers in the IT UK Smaller Companies sector where the average return last year was 2.2 per cent.
Performance of trust vs sector in 2020
Source: FE Analytics
Luzio opted for the trust in the belief that a Brexit deal would be forthcoming early on in 2020, with UK equities – particularly in the micro-cap space – stood at an inflection point.
“If you had told me at the start of 2020 that the most deadly pandemic in more than 100 years would cause the sharpest economic contraction in history, it is fair to say I wouldn’t have gone for a micro-cap trust as my pick for the year,” said Luzio. “However, lowly starting valuations in this part of the market, and Williams’ focus on companies with strong balance sheets, helped the trust bounce back quickly from March’s lows.”
The next best-performing fund from the Trustnet team’s picks was by reporter Eve Maddock-Jones, who chose the Rathbone Global Sustainability fund.
Overseen by David Harrison, the Rathbone Global Sustainability fund is a sustainable investment strategy aiming to outperform the FTSE World index over the long term.
Sustainable investing is a style that performed well last year as greater interest and a greater skew to the pandemic’s ‘winners’ – such as technology stocks – and the absence of more challenged and carbon-unfriendly oil & gas companies which underperformed.
As such, Rathbone Global Sustainability rose by 32.22 per cent outperforming both the IA Global peer group (up 15.27 per cent) and the FTSE World benchmark (12.74 per cent).
Performance of fund vs sector & benchmark in 2020
Source: FE Analytics
Maddock-Jones said: “There was a massive increase in investors putting their monies into ESG – environmental, social & governance – and sustainable investment options last year as a consequence of the Covid-19, a trend which the Rathbone Global Sustainability fund will have benefited from with its strong sustainable investment ethos.
“Indeed, the fund outperformed both its IA Global peers and the FTSE World index in a year of major financial stress as a consequence of Covid-19.”
In third place was Trustnet news editor Rob Langston with his fund pick – Fidelity China Consumer.
The £310m, four FE fundinfo Crown-rated strategy is managed by Hyomi Jie and aims to provide long-term growth by investing in companies involved in the development, manufacture or sale of goods or services to consumers.
Having locked down and, therefore, emerged earlier after the Covid-19 coronavirus took hold, the domestic economy was left largely unscathed by the pandemic, which originated in the Chinese city of Wuhan.
Performance of fund vs sector & benchmark in 2020
Source: FE Analytics
Fidelity China Consumer made a total return of 32.14 per cent, underperforming the IA China/Greater China peer group average (33.55 per cent), although it was significantly ahead of the MSCI China benchmark’s 25.5 per cent return.
Langston chose the fund based on his expectations that trade tensions with the US would ease in an election year and help boost the Chinese economy. However, this was overtaken by the Covid-19 pandemic.
“I’ll happily admit to choosing this fund for the wrong reasons, but it definitely feels as if the shift in global leadership to China accelerated last year as Donald Trump’s time in office drew to a close,” said Langston. “Despite being the epicentre for the virus, it was successful in locking down and containing the spread and it has clearly benefited as a result.”
Finally, Trustnet editor Gary Jackson saw his fund pick – Polar Capital UK Value Opportunities – make the team’s only loss.
Polar Capital UK Value Opportunities fell 7.72 per cent in 2020, greater than the 6.01 per cent loss recorded by the IA UK All Companies sector but lower than the 9.82 per cent loss for the FTSE All Share index.
Performance of fund vs sector & benchmark in 2020
Source: FE Analytics
The UK lagged other developed markets as it was initially slow to react to the spread of the coronavirus and post-Brexit trade talks took a backseat to the unfolding pandemic. Indeed, there were few signs of progress on trade talks throughout the year until an eleventh-hour deal was struck on Christmas Eve. Nevertheless, the approval and rolling out of two vaccines towards the end of the year lifted markets.
Furthermore, the value style utilised by the fund’s managers – Georgina Hamilton and George Godber – has been out of favour for much of the past decade as growth strategies have dominated.
The emergence of vaccines with high efficacy in recent months has boosted sentiment towards value stocks as hopes for a return to normal conditions have emerged, but it was too late for this fund.
“2020 obviously wasn’t a fantastic year for UK value, thanks to coronavirus pandemic and drawn-out Brexit negotiations, and Polar Capital UK Value Opportunities’ 7.72 per cent fall puts it in the bottom quartile of the entire Investment Association universe,” said Jackson. “That said, the fund did beat its FTSE All Share benchmark last year and I remain a fan of it over the long term.”