It’s been a fairly calamitous start to the year, hasn’t it?
China has re-taken the mantle of being the epicentre of bad news for global markets, as it was in 2015, with poor PMIs, the devaluation of the yuan and serious concerns over a ‘hard landing’ in the world’s second largest economy causing the country’s new circuit breaker mechanism to spring into action twice this week.
As a result, global stocks have taken a tumble. The FTSE 100, for example, has fallen below the 6,000 level once again (though it has recovered some of its losses this morning at the time of writing) while 10-year UK gilt yields have rallied back down to 1.82 per cent on the back of the general nervousness.
Of course, the big question for all investors (including members of the FE Trustnet team who stuck money in the equity market last month) is whether the worst has passed or whether the recent volatility is precursor to something far more sinister.
The rout in equities, along with reviews of last year, outlooks for the year ahead and our access to FE Analytics has kept us very busy this week. Therefore, as per tradition, here the FE Trustnet team highlights a selection of its favourite stories over the past seven days.
Have a great weekend.
The funds that gave their investors the largest returns in 2015
We start off with a look back at last year, as editor Gary Jackson went through the funds that made their investors the best total return during 2015 – which ended up being a bit of a tough year for many asset classes.
In keeping with Japan being the highest returning major equity market, the performance table was topped by Hideo Shiozumi’s £458.9m Legg Mason IF Japan Equity fund, which was up 49.35 per cent in sterling terms.
Source: FE Analytics
The fund has performed strongly over recent years, on the back of the ambitious Abenomics reforms that have been launched to revive the world’s third largest economy. Over three and five years, only AXA Framlington Biotech and Candriam Equities L Biotechnology have posted a higher total return than Shiozumi’s fund.
However, the manager is known for soaring when Japan is doing well but falling hard when the country’s stock market is in a downturn, thanks to his preference for Japanese mid and small-cap stocks. Over 10 years, its maximum drawdown has been 78.79 per cent while its return is only just in positive territory.
But Japan wasn’t the only market to do well in 2015, despite all the well publicised headwinds, and in this article we took a closer look at the UK smaller companies and European funds that also managed to make some of the highest returns in the Investment Association universe.
Don’t panic over the China-led market rout, says Mark Dampier
Next up, we look at a topic which may be slightly more pressing to investors.
Following a trading session in the Chinese equity market which lasted all of 870 seconds thanks to a 5 per cent fall triggering the country’s new circuit breaker mechanism and causing a global rout in risk assets, Hargreaves Lansdown’s Mark Dampier told news editor Alex Paget that investors should sit tight and ‘not panic’. 
While certain commenters likened Dampier to Captain Jones, the head of research was confident buying opportunities will open up over the shorter term.
“Long-term investors should sit tight. The Chinese market falls are also hurting global markets which look painful in the short term but are beginning to present buying opportunities,” Dampier said.
The likes of AXA Wealth’s Adrian Lowcock agreed with this, arguing that by selling now, investors are effectively closing the stable door after the horse has bolted.
Tilney Bestinvest’s Jason Hollands struck a far more cautious tone, though, and said investors need to look to protect their portfolios against further market falls.
“Slowing global growth (with China at its epicentre), disinflationary pressures but continued high levels of government and consumer debt constraining consumption growth, combine to make for a cocktail of concerns in the outlook for 2016 which is why in the near term we think investors need to take tread with caution and be very selective on where they invest,” Hollands said.
Has your absolute return fund been doing its job?
Next, senior reporter Daniel Lanyon looked at the absolute return sector, an investment area where many professional fund pickers are increasing exposure to this year in anticipation that 2016 could be a perilous 12 months.
An analysis of our data showed nearly one in three funds in the IA Targeted Absolute Return sector failed to deliver a positive return to investors last year while only half kept up with the FTSE All Share.
While many of these funds invest in a specific asset classes, some of the more mainstream portfolios such as Marlborough Defensive, Insight Global Absolute Return, BlackRock Dynamic Return Strategy and Thesis TM Cartesian UK Absolute Alpha were among those losing cash last year.
Click through to see how the sector as whole and some of the more notable funds it contains performed over the longer term.
Should you sell these top-performing investment trusts?
Certain investment trusts have historically warranted higher ratings than many of their peers due to their stellar track records and highly-experienced management teams, but as well all know, the single largest risk to an investment is the price you pay for it.
Therefore, in this article, reporter Lauren Mason asked the experts about three of the best performing trusts in the closed-ended universe to see whether investors should consider selling their holdings.
The trusts in question were Lindsell Train IT (which is on a premium of more than 30 per cent), Law Debenture (a favourite among income investors) and Woodford Patient Capital (which launched to great fanfare last year).
The commentators Mason spoke to said investors should keep hold of Law Debenture due to its highly profitable independent fiduciary services (which isn’t fully included in the trusts NAV), but that they should ignore the other two portfolios.
In relation to Neil Woodford’s trust, Hawksmoor’s Ben Conway said: “With investment trusts that have close substitutes (such as open-ended funds, which you can obviously purchase virtually at NAV), we would always be wary of paying a premium as it might not persist. Indeed, in an era of such low interest rates, investors should be more focused than ever on not over-paying for anything.”
Why it’s not all doom and gloom for markets
The financial pages of newspapers tend to be dominated around this time of year by predictions of how markets will fare over the next 12 months and these outlooks have been overwhelmingly pessimistic in 2016.
Weak Chinese manufacturing data, renewed conflict in the Middle East, GDP downgrades and the prospect of more interest rate rises from the Federal Reserve have all been cited as reasons why 2016 is unlikely to be much better for markets than last year.
However, Guy Stephens, managing director of Rowan Dartington Signature, says investors need to take a step back and look at the bigger picture, as things are not as bad as everyone seems to be making out.
“Quoting the numbers in sterling without income, the FTSE 100 was down by 4.93 per cent [last year], but with income reinvested this improves to a loss of 1.32 per cent,” he said.
“You would think this had been a disaster and when you consider the three-year numbers with the effect of compounding and inclusive of income, the results belie the gloom, being 5.84 per cent capital only and 17.96 per cent inclusive of income.”
“The former is a pretty derisory return over three years, but the latter is not and this exposes the flawed focus on the absolute level of the major indices, which leads to a disappointed and disillusioned investor mind-set.”
