Fewer than 1.5 per cent of funds were able to stay in the top quartile of their sector in each of 2020’s four distinct market environments, research by Trustnet shows. 
Last year presented investors with a series of challenging market to navigate, as the coronavirus pandemic spread around the world and policymakers did their best to ease its economic impact.
Handily, these phrases roughly correspond with the four quarters of the year: Q1 witnessed the brutal coronavirus crash, Q2 saw a lockdown rally, Q3 brought the re-opening rally and the year ended with Q4’s vaccine rally.
Performance of MSCI sectors by 2020 quarter
Source: FinXL
The above chart allows us to see how this played out on an equity sector level.
During the first quarter, investor panic at the seriousness and speed of the coronavirus outbreak caused equities to plummet. All sectors were hit, but energy was the worst with a 40 per cent drop; healthcare held up best with a fall of just 5.3 per cent.
The second quarter saw much of the globe go into lockdown to slow the spread of the virus. But at the same time governments and central banks turned on the money taps to shore up the global economy, sparking a market rally that lifted all sectors.
In the third quarter, many countries were starting to ease their lockdowns – albeit with some significant restrictions remaining place. This prompted mixed performance, with ‘coronavirus winners’ like tech and consumer discretionary stocks continued to rise while cyclical areas such as energy and financials fell.
The year ended with the announcement that several effective coronavirus vaccines had been developed, sparking hope that 2021 would bring an end to the pandemic and the resumption of more ‘normal’ conditions. This reversed many of the trends seen over the rest of 2020, with the financials and energy sectors jumping 17 per cent thanks to improved investor sentiment.
The first chart showed how each quarter looked from an MSCI sector point of view, but the below reveals how this translated by investment style.
Performance of investment style by 2020 quarter
Source: FinXL
Value was the laggard during the opening three quarters of the year as the economic fallout of the Covid crisis caused investors to avoid cyclical stocks. This changed in the final quarter, however, as optimism set in about the rollout of vaccines.
The growth investing style dominated for most of the year. As we have seen for much of the past decade, growth stocks tend to benefit from the ultra-low interest rates and massive quantitative easing programmes that have been used to tackle crises.
When it comes to how funds navigated 2020, a previous Trustnet article has already revealed which made the year’s highest total returns.
But here we look at how many funds were able to generate the highest returns of their peer group in each of 2020’s different phases. To do this, we reviewed the quartile rankings of the 2,645 Investment Association funds that have a track record going back to at least 1 January 2020 and reside in a sector where quartile rankings are appropriate.
First up, 1,700 funds – 64.3 per cent – or were in the top quartile of their respective sector in at least one of 2020’s four quarters.
Of course, this means that 945 funds (35.7 per cent of the sample) failed to make top-quartile returns in any quarter. Some of the better-known funds in this bracket include Royal London UK Equity Income, Invesco UK Equity Income, Pictet Digital, Fidelity China Focus, Jupiter Asian Income and Schroder Tokyo.
Some 1,004 funds (or 37.96 per cent) made a top-quartile return in just one of 2020’s four quarters. It is tempting to think that most of these most have taken place in the fourth quarter, when market leadership rotated towards value, but this wasn’t actually the case – only 285 of these funds had their sole top quartile in the last three months of the year.
Another 441 funds (or 16.67 per cent) had two quarters in their sector’s top quartile while 217 (or 8.20 per cent) were top quartile in three of the quarters.
This leaves just 38 funds – or 1.44 per cent of those analysed – that were able to sit at the top of their peer group in all four of 2020’s different phases. They can be seen in the table below, which is ranked in order of funds’ total returns for the whole year.
Source: FinXL
Topping the table is Baillie Gifford American, which made a 121.8 per cent total return last year. It has been mentioned several times already in the new year as it made the highest return out of the more than 4,000 funds in the Investment Association universe.
As has been discussed many times, Baillie Gifford – which is known for a long-term approach that focuses on finding growth businesses with the potential to innovate or disrupt their industries – had a strong showing in 2020 with many of its funds generating some of the highest returns of their sectors.
Things were no different in this research and the table has eight Baillie Gifford funds on it – more than one-quarter of those that made it.
French asset manager Carmignac is also well-represented on the list, as five of its funds were top quartile in each of 2020’s quarters.
The firm embeds environmental, social and governance (ESG) principles into all of its investment processes. ESG had a strong year in 2020 and funds making use of these principles tended to outperform their traditional peers.
Other asset management groups with more than one funds on the above list include BNY Mellon and Premier Miton.