Giant funds managed by the likes of Invesco, Jupiter and Man GLG generated some of the weakest returns for their investors last year, FE fundinfo data shows.
Income and value fund giants were the worst performers globally in 2020, with the heaviest losses coming from UK strategies.
Having previously looked at the best and worst performers from the whole Investment Association universe, here Trustnet focuses on the funds that are larger than £1bn in size to identify those that failed to beat their peers.
Of the 496 fund giants that are larger than £1bn and reside in a sector where quartile rankings are appropriate, around 18 per cent ranked bottom quartile last year. The 25 bottom-performing giant funds can be seen in the table below.
Table Losing fund giants of 2020
Source: FE Analytics
Looking at the 25 worst performers, more than 80 per cent were UK equity strategies. This should come as no surprise given the UK equity market was one of the worst performing in the world.
Among the 10 worst performers, six were income strategies, three were value strategies and one was a UK mid-cap strategy.
The largest losses came from Invesco’s UK equity income strategies, namely the £3.2bn Invesco UK Equity High Income and the £1.4bn Invesco UK Equity Income fund, both run by Ciaran Mallon and James Goldstone (they took over the funds from Mark Barnett in May 2020).
These funds hold household UK names such as Tesco, Barclays and British American Tobacco in their top-10, all of which experienced share price declines over 2020.
However, one of the top-10 holding for both funds is UK-listed biotechnology firm Puretech Health, which has seen its share price double since its March 2020 lows.
The third worst performer in the table is the £1.3bn Jupiter Income Trust, managed by renowned value investor Ben Whitmore, who also runs the £1.7bn Jupiter UK Special Situations fund.
At the end of the year, Whitmore commented on the scale of the value style’s underperformance and said “if history holds, right now offers potentially one of the most attractive times to invest in lowly valued shares”.
He added: “We are very conscious of the recent poor returns for clients, but we do not believe that this undermines value’s long history of dealing with huge change in investment markets.”
Value investing has been lagging the growth style for the last decade but this divergence in performance was dramatic in 2020. During the year, value-based approaches performed poorly relative to growth as investors piled into technology-orientated, long-duration growth stocks amid the slashing of interest rates by global central banks.
MSCI Growth v MSCI Value indices in 2020
Source: FE Analytics
Indeed, many other bottom performing funds were value-based strategies, such as the £1.2bn JOHCM UK Dynamic fund and the £1.2bn Man GLG Undervalued Assets fund.
The £1.1bn Man GLG Japan Core Alpha fund for example, has a deep value approach and was the only large Japanese fund in the table at bottom of its sector with a 13.99 per cent loss, despite a 9.14 per cent return from the TSE Topix index.
Two FTSE 100 index trackers were also in the list of bottom performers, namely the BlackRock’s £1.7bn iShares 100 UK Equity Index tracker and the £1bn Halifax UK FTSE 100 Index tracker.
Their performance closely mirrors the FTSE 100’s loss of 11.55 per cent during 2020. This was its biggest drop since 2008 and ranked it the worst performing index amongst the largest global stock indices.
This is partly because all of the sectors hit hardest by the coronavirus pandemic were travel, leisure, retail, energy and banks, of which make up a large proportion of the FTSE 100. The UK market is also very light on tech companies, which tended to have a strong year.
Furthermore, before the pandemic struck, the FTSE 100 was known as one of the highest income-paying equity markets in the world, with a heavy concentration of high dividend payers.
So, when the crisis caused cashflows to dry up, many banks and high dividend paying firms slashed dividends either by choice or by government orders, causing a heavy blow to the UK equity market.
These factors, notwithstanding a long-awaited Brexit transition coming to an end, made for a difficult year for UK-focused investors.
Performance of FTSE 100 versus other major indices
Source: FE Analytics
The only giant European fund to fall into the bottom 25 was the £1.1bn JPM Europe Strategic Value fund, a value strategy that includes UK equities.
Other poor performers included two infrastructure funds, the £1.4bn Lazard Global Listed Infrastructure Equity and the £1.7bn First Sentier Global Listed Infrastructure fund.
The coronavirus pandemic and country-wide lockdowns around the world also hurt the businesses of utilities, airports services, highways and railways, and oil & gas storage and transport.
It is worth noting that not every China fund performed well despite it being the strongest equity market during the year.
For example, the £1.8bn Fidelity China Focus fund, run by Jing Ning, was fourth quartile in 2020 with a loss of 3.87 per cent.
In the fixed income space, the actively managed £19bn Pimco GIS Global Investment Grade Credit fund ranked bottom quartile in the IA Sterling Corporate Bond sector with a 4.26 per cent return.
Meanwhile two bond index giants, namely the £2.3bn Vanguard UK Short-Term Investment Grade Bond Index and the £1.7bn L&G Short Dated Sterling Corporate Bond Index, were also bottom quartile of the sector, with returns of 5.91 and 3.85 per cent respectively.
Even though technology funds experienced a record-breaking performance in 2020, two giant tech-focused funds ranked bottom of the IA Technology & Telecommunications sector.
The £3.9bn Pictet Digital fund and the £1.2bn Janus Henderson Global Technology Leaders fund returned 30.04 and 37.05 per cent respectively. While both funds made high returns by the standard of most non-tech funds in 2020, they lagged other members of their sector and fell into its bottom quartile.