While the likes of MFM Slater Growth and MFM Slater Recovery - managed by FE Alpha Manager Mark Slater - made investors almost 18 per cent, less than half of the funds in the IA UK All Companies sector achieved a return higher than the FTSE All Share’s gain of 1.18 per cent.
Broader market volatility became progressively low in the first half of 2014 before it rapidly ramped up in the second half of the year and has continued to move upwards in recent weeks.
In fact, volatility as measured by the VIX index has started to spike again after falling back from its highs as markets sold off in September and October last year. As the graph below shows, it is up more than 70 per cent since 5 December 2014 and over six months it is up 83.28 per cent.
Performance of indices over six months
Source: FE Analytics
Many fund managers and market commentators agree that they are expecting even greater volatility throughout 2015 with the likes of David Jane (pictured), manager of the £420 CF Miton Special Situations fund, and Square Mile’s Richard Romer-Lee saying so in recent weeks.
Jane said: “We expect volatile but rising markets as individual and corporate earnings reflect the benefits of cheaper oil and companies funding costs continue to fall, reflecting lower interest rates. Volatility is likely to remain a feature and no doubt it will come from unexpected sources as well as the obvious recent cases of politics, energy and eurozone worries.”
Ben Willis, head of research at Square Mile, says while he is expecting greater volatility, pointing to several events and trends that will drive the turbulence, he doesn’t think investors should take it as anything other than a short-term impact.
“We saw volatility return in the last quarter of last year and we are looking to get more in the first half of this year. Europe is still dominating the headlines with the ECB looking to do QE, the Greek elections and the UK in the run up to its own election, as well as the oil price falling,” Willis said.
Greek elections will take place on 25 January with many expecting voters to opt for a result that could make the next stage of its bail-out conditions harder and even a ‘Grexit’ likely.
AXA Investment Management’s research and investment strategy team have also pointed to the vote as potentially harmful to wider markets.
They say if the new Greek government refuses to abide with troika conditions there could be a relapse into recession, a further fall in equity markets, capital flight and a retrenchment of both consumers and companies. This could cause global equity markets to experience a significant correction, although they say this would be a buying opportunity for global equities.
Russ Koesterich, global chief investment strategist at BlackRock, meanwhile thought recent turbulence was caused by lingering geopolitical issues and a pending Federal Reserve rate hike.
“Given that, look for more volatility in 2015 as the Fed begins to normalise rates,” he said, adding there are several key consequences for investors.
“First, expect volatility to be elevated compared to the levels witnessed from 2012 to 2014. This suggests strategies that thrive in ‘low vol’ environments – notably momentum – may struggle this year. Instead, we suggest investors consider more value-oriented and high-quality names in a portfolio.”
“Second, be more tactical within fixed income. Bonds with maturities in the two to five-year range are likely to prove the most vulnerable to higher interest rates. It is worth highlighting that while 10-year treasury yields are down over 1 per cent from a year ago, two-year yields, which are more sensitive to the Fed, have actually risen since the start of 2014.”
He says a "barbell strategy," that holds longer-maturity bonds balanced against those with very short maturities, should hold up best.
Romer-Lee, in a recent video interview with FE Trustnet, agreed that heighted volatility should be beneficial to those investors who take advantage to it.
“Volatility means different things to different people. On the one hand when prices are more volatile it can make investors more nervous as the valuation of their investment jumps around. To other people volatility creates opportunity to buy assets more cheaply or sell them more expensively,” Romer-Lee said.
“If we think markets are more fully valued then it is going to harder to generate returns just by being exposed to the market and you are going to want to look for a manager who can take advantage of the volatility to add value. It is what the market and analysts would call generating alpha rather than beta.”